In this report, we assess the rationale on which FSOC relied in designating MetLife as a systemically-important financial institution (SIFI). The firm may well challenge this in court, but FSOC’s approach will guide it to any other designations early next year (i.e., for large broker-dealers), further work on the U.S. resolution framework (especially with regard to insurance companies), FRB regulation of insurance companies, and the new approach to asset management released in concert with this designation (see Client Report FSOC15). The rationale is also a building block to final action on the FRB’s pending regulatory framework for non-bank SIFIs (see FSM Report SIFI). Interestingly, certain activities – e.g., securities financing, FHLB advances – are cited as evidence of systemic risk even though MetLife’s role is small in relation both to the firm and the broader market – signposts in our view to considerations critical to future FSOC and FRB action. The focus on non-traditional liability products should in our view be seen as an early warning to other insurers about action FSOC and the FRB will take with regard to cash-equivalent products other than MMFs going forward. Although this designation may be contested and the entire process is under attack on Capitol Hill, much in it can be implemented by regulators absent wholesale Dodd-Frank rewrites.
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