Financial Stability Oversight Council Names MetLife for Consolidated Supervision and Enhanced Prudential Standards–Basis Document Included

 

The Financial Stability Oversight Council (“FSOC” or “Council”) announced yesterday, December 18, 2014, that it voted to designate MetLife, Inc. (“MetLife”) as a nonbank financial company in order to address potential threats to U.S. financial stability.  

To read FSOC’s comprehensive basis document explaining the MetLife designation, click here.

MetLife was preliminarily declared to be a Systemically Important Financial Institution (“SIFI”) this past September, after which the company requested an evidentiary hearing.  Yesterday’s vote constituted a final action by the FSOC in the process, unless MetLife decides to appeal in court, an option that the company is contemplating.

The FSOC used its authority under Title I of the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank”) to subject MetLife to consolidated supervision and enhanced prudential standards.  The vote was nine to one. 

“After a year and a half of extensive and in-depth analysis–including significant engagement with the company–the Council has determined that material financial distress at MetLife could pose a threat to U.S. financial stability,” said Treasury Secretary Jacob J. Lew, FSOC Chairman.  “Designation of a nonbank financial company is a critical tool for the Council to address potential threats to U.S. financial stability.  Consistent with its mandate, the Council remains focused on protecting the broader economy from the types of risk that contributed to the financial crisis.” 

The FSOC’s designation of MetLife as a nonbank financial company subjects the company to supervision by the Board of Governors of the Federal Reserve System (“Board”), as well as to enhanced prudential standards.  

In its news release announcing yesterday’s vote, the FSOC emphasized that its decision was consistent with the statutory standard for such designations by the FSOC and explained that the designation does not constitute a determination that the MetLife is currently experiencing, or is likely to experience material financial distress.  

On July 16, 2013, the FSOC notified MetLife that it was under consideration for a proposed determination as a SIFI.  Following more than a year of engagement between the FSOC and MetLife, the company received a notice on September 4, 2014 informing it that the FSOC had made a proposed designation and providing an explanation of the basis for doing so.  The company requested a written and an oral hearing to contest the proposed determination.  The FSOC granted the request and held an oral hearing on November 3.  

The FSOC will–at least annually–re-evaluate its designation of MetLife and rescind the designation if the FSOC determines that the company no longer meets the statutory standards for such designation.

MetLife is the fourth company that has received the nonbank financial company designation by the FSOC.  In 2013, the FSOC similarly designated Prudential Financial, American International Group and General Electric Capital Corporation.  Under a separate authority in July 2012, the FSOC designated eight systemically important financial market utilities for enhanced risk management standards.

Dodd-Frank sets forth the standard for the FSOC’S designation of a nonbank financial company and requires the FSOC to take into account 10 specific considerations when evaluating those types of companies.  To further inform the public of the FSOC’s framework and processes for assessing nonbank financial companies, it voluntarily developed a Rule and interpretive guidance, beginning with the release of an advance notice of proposed rulemaking at its very first meeting in October 2010.  The FSOC explained that it had heard three rounds of public comment before finalizing its rule and guidance. 

The FSOC engages in a three-stage process when assessing nonbank financial companies for potential designation.  

• In Stage 1, it applies uniform quantitative thresholds to identify nonbank financial companies for further evaluation.  
• In Stage 2, it analyzes the nonbank financial companies identified in Stage 1 using a broad range of information available to the Council primarily through existing public and regulatory sources.  
• In Stage 3, it contacts each nonbank financial company that it believes merits further review to collect information directly from the company that was not otherwise available in the prior stages.  Each nonbank financial company that is reviewed in Stage 3 is immediately notified that it is under consideration and is provided an opportunity to submit written materials related to the FSOC’s consideration of the company for a proposed designation. 

Further information about the FSOC process, including a set of frequently asked questions and answers, is available at www.fsoc.gov.  

 

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