(Reuters) - The U.S. government on Monday said MetLife Inc’s lawsuit fighting its designation as being systemically important to the economy, often referred to as “too big to fail”, should be dismissed.
MetLife had in January became the first nonbank to challenge a decision by the Financial Stability Oversight Council, a panel led by Treasury Secretary Jacob Lew, that it qualified as a systemically important financial institution.
The SIFI designation means regulators are concerned that a company’s failure, should it ever occur, might imperil the financial system. Companies with the designation are subjected to Federal Reserve oversight, and could face tighter capital and liquidity requirements that might impede growth and profits.
In an evening filing with the federal court in Washington, D.C., the U.S. Department of Justice acknowledged that the life insurance business for which New York-based MetLife is best known did not alone result in the SIFI designation.
But the department said MetLife was “significantly interconnected” with other financial companies through its institutional and capital markets activities and its insurance products.
It also said the oversight council, whose authority to decide which companies are systemically important comes from the Dodd-Frank financial overhaul, was not “arbitrary and capricious” in deciding that MetLife was systemically important.
“MetLife’s numerous disagreements with the Council’s analysis and conclusions are meritless,” the government said. “MetLife’s complaints, if accepted, would frustrate the express statutory purpose of the Council: to address potential risks to financial stability posed by the distress of certain companies before that distress occurs and poses an imminent, grave threat to the nation’s economy.”
In response to the filing, MetLife said: “Far from presenting systemic risk to the U.S. economy, MetLife is a source of financial stability. We strongly disagree with the arguments laid out by the government in its brief and look forward to responding in court next month.”
Several banks have the SIFI designation. Nonbanks that have it include the insurers American International Group Inc and Prudential Financial Inc, and General Electric Co’s finance arm.
MetLife has said it and some other life insurers do not face the same liquidity risks as banks because they do not depend on short-term deposits and wholesale funding, or invest in illiquid long-term assets such as commercial loans.
The case is MetLife Inc v. Financial Stability Oversight Council, U.S. District Court, District of Columbia, No. 15-00045.