Wall Street’s Big, Bad Post-Crisis Regulator Is Pretty Cautious
A court ruling that erased MetLife Inc.’s too-big-to fail label has been depicted as a referendum on the future of the Dodd-Frank Act’s super regulator. But the key power that the Financial Stability Oversight Council wields — designating firms as being so big and interconnected that their failure could threaten the financial system — was already gathering cobwebs. While U.S. District Judge Rosemary M. Collyer slammed FSOC for the way it went about labeling MetLife, she made clear that she believes the council was acting within its authority, meaning the ability to designate other companies isn’t really in doubt. Even so, the council has been slow to go after anybody else, and indications that it was looking at companies such asBerkshire Hathaway Inc.andNomura Holdings Inc.haven’t gone anywhere. “FSOC itself has decided that, regardless of this litigation, designation is a less effective approach to systemic regulation,” said Karen Shaw Petrou, managing partner of Washington-based research firm Federal Financial Analytics. “FSOC does not appear to be contemplating any other near-term designations.” Receiving the systemically important financial institution label can bring significant consequences, which is why insurer MetLife sued the government. Companies can face stringent capital and liquidity requirements and aggressive monitoring by the Federal Reserve. While any bank with more than $50 billion of assets automatically got rolled in under Dodd-Frank, FSOC has designated exchanges, clearinghouses and four companies: American International Group Inc., General Electric Capital Corp. Inc., Prudential Financial Inc. and MetLife.