On December 18, 2014, the Financial Stability Oversight Council (FSOC) designated MetLife, Inc. a nonbank systemically important financial institution (SIFI). FSOC, a unit of the U.S. Department of the Treasury, was created by the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010.
The MetLife Lawsuit
On January 13, 2015, MetLife filed a lawsuit against FSOC challenging the designation of the company as a nonbank SIFI. The case was assigned to U.S. District Judge Rosemary M. Collyer. (President George W. Bush nominated her in August 2002, the Senate confirmed her in November 2002, and she assumed senior status in May 2016.)
On March 30, 2016, Judge Collyer ruled that FSOC's nonbank SIFI designation of MetLife was "arbitrary and capricious," and she rescinded the designation. The ruling raised questions about FSOC's ability to carry out its duties under the Dodd-Frank Act. (See MetLife v. FSOC, U.S. District Court for the District of Columbia, Case No. 1:15-cv-45.)
The Appellate Case
On June 16 FSOC appealed the ruling by filing an appellate brief. MetLife's reply brief is due August 15, and FSOC's answer to the reply brief is due September 9. The makeup of the panel that will hear the appeal is not yet known. (See MetLife v. FSOC, U.S. Court of Appeals for the District of Columbia Circuit, Case No. 16-5086.)
The Amicus Briefs
In the district court, several amicus briefs were filed on behalf of the parties. Among those filing amicus briefs on behalf of MetLife were the National Association of Insurance Commissioners (NAIC), the American Council of Life Insurers, and the U.S. Chamber of Commerce. Among those filing amicus briefs on behalf of FSOC were a group of professors of economics, a group of professors of administrative law, and a group of professors who specialize in insurance and financial regulation.
In the appellate court, among those filing amicus briefs on behalf of FSOC were Ben S. Bernanke and Paul A. Volcker, a group of professors of administrative law, and a group of professors who specialize in insurance and financial regulation. I am not aware of any amicus briefs filed in the appellate court on behalf of MetLife.
The NAIC Amicus Brief
On September 28, 2015, the NAIC filed its amicus brief in the district court on behalf of MetLife. Here are the NAIC's three arguments:
The Bernanke/Volcker Amicus Brief
Bernanke is Distinguished Fellow in Residence with the Economic Studies Program at the Brookings Institution. Prior to his government service, Bernanke held academic positions at Princeton University, Stanford Graduate School of Business, Massachusetts Institute of Technology, and New York University. He served as a member of the Federal Reserve Board of Governors from 2002 to 2005, Chairman of the Council of Economic Advisors in 2005, and Chairman of the Federal Reserve Board of Governors from 2006 to 2014. He is a renowned expert on the Great Depression. He played a key role in dealing with the 2007-2009 financial crisis, and described the experience in The Courage to Act, A Memoir of a Crisis and Its Aftermath (2015).
Volcker is Chairman of Volcker Alliance, Inc., a nonprofit charitable corporation launched in 2012. Its mission is to address the challenge of effective execution of public policies and to rebuild public trust in government. He served as Undersecretary of the Treasury from 1969 to 1974, President of the Federal Reserve Bank of New York from 1975 to 1979, Chairman of the Federal Reserve Board of Governors from 1979 to 1987, and Chairman of the President's Economic Recovery Advisory Board from 2009 to 2011.
On June 23, 2016, Bernanke and Volcker filed their amicus brief in the appellate court on behalf of FSOC. They laid out the situation succinctly in this paragraph:
If the appellate court affirms the district court ruling, it would be frightening to contemplate the future of our financial system. I think it is imperative that the appellate court reverse the district court ruling.
Available Material
I am offering a complimentary 46-page PDF consisting of the 19-page Bernanke/Volcker amicus brief filed in the appellate court on behalf of FSOC, and the 27-page NAIC amicus brief filed in the district court on behalf of MetLife. Email jmbelth@gmail.com and ask for the July 2016 package relating to the MetLife/FSOC case.
The MetLife Lawsuit
On January 13, 2015, MetLife filed a lawsuit against FSOC challenging the designation of the company as a nonbank SIFI. The case was assigned to U.S. District Judge Rosemary M. Collyer. (President George W. Bush nominated her in August 2002, the Senate confirmed her in November 2002, and she assumed senior status in May 2016.)
On March 30, 2016, Judge Collyer ruled that FSOC's nonbank SIFI designation of MetLife was "arbitrary and capricious," and she rescinded the designation. The ruling raised questions about FSOC's ability to carry out its duties under the Dodd-Frank Act. (See MetLife v. FSOC, U.S. District Court for the District of Columbia, Case No. 1:15-cv-45.)
The Appellate Case
On June 16 FSOC appealed the ruling by filing an appellate brief. MetLife's reply brief is due August 15, and FSOC's answer to the reply brief is due September 9. The makeup of the panel that will hear the appeal is not yet known. (See MetLife v. FSOC, U.S. Court of Appeals for the District of Columbia Circuit, Case No. 16-5086.)
The Amicus Briefs
In the district court, several amicus briefs were filed on behalf of the parties. Among those filing amicus briefs on behalf of MetLife were the National Association of Insurance Commissioners (NAIC), the American Council of Life Insurers, and the U.S. Chamber of Commerce. Among those filing amicus briefs on behalf of FSOC were a group of professors of economics, a group of professors of administrative law, and a group of professors who specialize in insurance and financial regulation.
In the appellate court, among those filing amicus briefs on behalf of FSOC were Ben S. Bernanke and Paul A. Volcker, a group of professors of administrative law, and a group of professors who specialize in insurance and financial regulation. I am not aware of any amicus briefs filed in the appellate court on behalf of MetLife.
The NAIC Amicus Brief
On September 28, 2015, the NAIC filed its amicus brief in the district court on behalf of MetLife. Here are the NAIC's three arguments:
A. FSOC failed to adequately consider the full range of regulatory tools available to state regulators at the individual entity and group level.
B. FSOC failed to assess the risk of asset liquidation against existing regulatory authority to actively prevent a "run on the bank" scenario, including early warning through risk-based capital requirements and stays on surrender activity.
C. FSOC failed to assess the risk of MetLife's ultimate failure against the deliberate, incremental process that applies to troubled companies supervised by state insurance commissioners.In its conclusion, the NAIC said that "FSOC acted in an arbitrary and capricious manner." The NAIC also said that FSOC "misunderstood, misconstrued, and dismissed the state regulatory system."
The Bernanke/Volcker Amicus Brief
Bernanke is Distinguished Fellow in Residence with the Economic Studies Program at the Brookings Institution. Prior to his government service, Bernanke held academic positions at Princeton University, Stanford Graduate School of Business, Massachusetts Institute of Technology, and New York University. He served as a member of the Federal Reserve Board of Governors from 2002 to 2005, Chairman of the Council of Economic Advisors in 2005, and Chairman of the Federal Reserve Board of Governors from 2006 to 2014. He is a renowned expert on the Great Depression. He played a key role in dealing with the 2007-2009 financial crisis, and described the experience in The Courage to Act, A Memoir of a Crisis and Its Aftermath (2015).
Volcker is Chairman of Volcker Alliance, Inc., a nonprofit charitable corporation launched in 2012. Its mission is to address the challenge of effective execution of public policies and to rebuild public trust in government. He served as Undersecretary of the Treasury from 1969 to 1974, President of the Federal Reserve Bank of New York from 1975 to 1979, Chairman of the Federal Reserve Board of Governors from 1979 to 1987, and Chairman of the President's Economic Recovery Advisory Board from 2009 to 2011.
On June 23, 2016, Bernanke and Volcker filed their amicus brief in the appellate court on behalf of FSOC. They laid out the situation succinctly in this paragraph:
The District Court's decision rests on three grounds. First, the court held that FSOC was required to assess the likelihood of MetLife's distress before determining whether its distress could threaten financial stability. Second, the court held that FSOC was obligated to project estimated losses of counterparties and other market participants in the event of MetLife's distress. Third, the court held that FSOC was required to conduct a cost-benefit analysis, taking into account the costs of enhanced prudential standards on MetLife. Strikingly, not a single one of these purported requirements is enshrined in the Dodd-Frank Act, or anywhere else in statute; each is inconsistent with FSOC's interpretations of its own rules and guidance; and each defies the compelling logic behind the designation process contemplated by Congress when it established FSOC.Bernanke and Volcker then discuss each of those three points in some detail. Here is their conclusion:
Amici respectfully submit the foregoing analysis and argument for the consideration of the Court. To accept the limitation on its authority inherent in the District Court rescission decision would in practice undermine both the letter of the relevant authorizing documents and the intent of the designation process embodied in the law.General Observations
If the appellate court affirms the district court ruling, it would be frightening to contemplate the future of our financial system. I think it is imperative that the appellate court reverse the district court ruling.
Available Material
I am offering a complimentary 46-page PDF consisting of the 19-page Bernanke/Volcker amicus brief filed in the appellate court on behalf of FSOC, and the 27-page NAIC amicus brief filed in the district court on behalf of MetLife. Email jmbelth@gmail.com and ask for the July 2016 package relating to the MetLife/FSOC case.
===================================
Email: jmbelth@gmail.com
Blog: www.josephmbelth.com