Life insurance giant MetLife will no longer be considered a potential threat to the financial system in the federal government's eyes, thanks to a federal court decision handed down Wednesday rescinding the "systemic" label placed on the firm by financial regulators.
MetLife's victory means that it will avoid the tougher regulations and higher capital requirements that come with the designation that it is a "systemically important financial institution."
"Today's ruling validates MetLife's decision to seek judicial review of our SIFI designation," said MetLife CEO Steven Kandarian said in a statement. "From the beginning, MetLife has said that its business model does not pose a threat to the financial stability of the United States. This decision is a win for MetLife's customers, employees and shareholders."
The ruling could set precedent for future actions of the Financial Stability Oversight Council, the super-group of regulators set up by President Obama's 2010 financial reform law to track down risks to the financial system originating outside of banks.
The full ramifications of the decision, however, are partly obscured by the fact that the court opinion was sealed. United States District Judge Rosemary Collyer ordered MetLife and the Council to meet before April 6th to discuss whether any of the opinion should be made public.
MetLife fought the "systemically important" designation after the regulators applied it to them in late 2014, arguing not only that the insurance company doesn't present risks to the U.S. economy and that the Council had failed to adequately assess its role within the financial system, but also that the council lacked constitutional authority.
Wednesday's ruling appeared to grant MetLife's request to undo its designation only on the grounds that the Council acted arbitrarily and capriciously — the high standard for court review set in the 2010 Dodd-Frank financial reform law. On other counts, including the argument that the Council lacks constitutional authority, Collyer denied its complaint.
In response to Wednesday's decision, a Treasury spokesperson defended the Council's original move to label MetLife, and suggested that the government would stand by the process used to identify and designate firms that could be risks.
"We strongly disagree with the court's decision," the spokesperson said in a statement issued early Wednesday afternoon. "We are confident that FSOC's determination was lawful and will continue to defend the Council's designations process vigorously."
The regulators conducted "rigorous" analysis of MetLife, the Treasury said, and "we firmly believe that FSOC acted well within its legal authority to protect the entire global economy."
In January, MetLife announced a restructuring to separate out its life insurance business in part because of the regulatory pressures it would face under the "systemically important" regime. Whether Wednesday's ruling will affect that decision is unclear.
The other firms to have received the "systemically important" tag from the Council are Prudential, General Electric Capital, and American International Group, or AIG. It was AIG's 2008 bailout, a rescue that also propped up Wall Street banks with which it had made major bets, that spurred Congress to create the Council and empower to regulate insurers and other businesses as if they were big banks.
The Council has come under fire from Congressional Republicans, who have criticized it as unaccountable and non-transparent and argued that its "systemically important" label amounts to an official recognition that the firm is "too big to fail."
Jeb Hensarling, the conservative chairman of the House Financial Services Committee, said in a statement that he was "very encouraged" by the ruling.
"The Financial Stability Oversight Council typifies the unfair Washington insider system that Americans have come to fear and loathe: powerful government bureaucrats, secretive government meetings, arbitrary and capricious rules, and the power to pick winners and losers – and taxpayers always end up being the losers," Hensarling said, warning that the designations process allows the government effectively to control "huge swaths" of the economy.
"FSOC's perfect storm of secrecy and intimidation has created a shadow regulatory system that concentrates power in Washington at the expense of hardworking Americans, and I'm pleased to see the judicial branch took a stand for the Constitution with their decision," said Scott Garrett, chairman of the subcommittee on capital markets and the author of legislation to reform the Council.