photo Treasury Secretary Jacob Lew
Wall Street Journal – Congressional Letter Highlights Awkward Consequence of MetLife Case
Apr 11, 2016
By Ryan Tracy
A letter sent to Treasury Secretary Jacob Lew by a member of Congress on Monday highlights the awkward international consequences of a U.S. federal judge’s decision to rescind federal oversight of MetLife Inc.
Rep. Scott Garrett (R., N.J.), chairman of the House Financial Services Committee’s subcommittee on capital markets, wrote to Mr. Lew asking how, after the decision, the U.S. now will proceed with applying new regulatory standards to insurers designated “systemically important.”
The awkward subtext: The U.S. effectively has promised other countries it will apply tighter standards to MetLife, but the federal government no longer has the authority to do so. That could be reversed if the Obama administration wins the case on appeal, a process that could take months.
Mr. Garrett’s criticisms are ones long held by the U.S. insurance industry and state insurance regulators regarding the Financial Stability Board, a group of global regulators from the U.S. and other countries.
On July 18, 2013, the FSB published a list of insurance companies it called “globally systemically important insurers” and agreed they should face tighter supervision. The Treasury Department, the Federal Reserve and Securities and Exchange Commission are U.S. representatives on the FSB. Since the FSB operates by consensus, Mr. Lew and other FSB members effectively endorsed the list of globally systemically important insurers.
That has long irked the insurance industry and regulatory critics such as Mr. Garrett, who point out the list was developed before U.S. regulators on the U.S. Financial Stability Oversight Council decided to apply stricter rules to domestic insurance companies. MetLife was on the July 2013 FSB list, along with rivals American International Group Inc. and Prudential Financial Inc., but MetLife wasn’t designated “systemically important” in the U.S. until December 2014. Prudential received the label in September 2013, and AIG received it July 8, 2013.
Mr. Garrett on Monday asked for a series of documents from Mr. Lew related to the FSB work. He also asked whether Mr. Lew plans to continue pursuing the stricter international standards the U.S. has agreed to apply to MetLife, now that the court has rescinded the federal government’s authority to do so.
MetLife is still overseen by state regulators, including in its home state of New York, and it is possible those regulators could take the view the firm deserves stricter rules because of its size and potential impact on the economy. But state regulators aren’t part of the FSB—a fact that has long frustrated them—so it is far from clear that they would keep up the U.S. end of the international bargain.
A Treasury spokesman didn’t immediately respond to a request for comment.
Mr. Lew previously has said that the U.S. and international processes for determining “systemically important” firms are separate and that U.S. regulators made their own decision about applying stricter rules MetLife and the other firms without regard to any international agreement.
