WASHINGTON (The Deal) -- A council of regulators set up to identify emerging threats to the economy on Thursday preliminarily designated Metlife (MET) as "systemically important," in a categorization that eventually will impose new liquidity and capital restrictions on the mega-insurer.
Although the council did not announce which institution received the label, MetLife in a statement acknowledged that it has been preliminarily designated. MetLife added that it "strongly disagrees" with the panel's determination.
"MetLife is not systemically important under the Dodd-Frank Act criteria. In fact, MetLife has served as a source of financial strength and stability during times of economic distress, including the 2008 financial crisis," the company said.
MetLife has 30 days to file an administrative appeal to the panel, which is known as the Financial Stability Oversight Council. If an appeal is requested, FSOC has up to 90 days to hold a hearing and conduct a final vote. After a FSOC approves a final designation, MetLife has 30 days to decide whether to challenge the designation in a federal district court in either D.C. or the Southern District of Manhattan. However, none of the other three nonbank firms designated so far, Prudential (PRU) , GE Capital, a unit of General Electric (GE) , and American International Group (AIG) , have challenged their decisions in court.
The insurance company said it is keeping all options on the table. "MetLife is not ruling out any of the available remedies under Dodd-Frank to contest a SIFI designation," the firm said in a statement.
The American Council of Life Insurers, the trade group for life insurers, said it was "extremely disappointed" by the designation of another life insurance company to the SIFI list.
"No single life insurer poses a systemic risk to the U.S. economy," ACLI said. "Life insurers adhere to strict state solvency laws and regulations that ensure they are able to meet their commitments. These standards appropriately reflect the long-term financial obligations of life insurance companies."
Nevertheless, a designation of MetLife was long expected. The insurance company had previously been designated a "systemically important financial institution" or SIFI because it had owned a bank and had significant assets under management. However, the insurance company sold the bank in January, 2013 and de-registered as a bank holding company. At that point the council began to examine whether the insurance giant should be designated a non-bank SIFI. Concerns about whether MetLife would be able to sell assets in a period of financial stress is likely one of the issues council members grappled with as they reviewed the company.
The council defended its decision in September 2013 to designate Prudential systemically risky, arguing that the company would have a hard time selling assets in a period of financial stress and as a result it could eventually "inflict significant damage on the broader economy."
FSOC said its vote was unanimous with one member voting present. It did not disclose who the member voting present was. Following the meeting, the council said it provided the company privately with a detailed written explanation of the basis of the proposed determination. If the FSOC votes to make its preliminary determination permanent it is expected to release publicly an analysis explaining why it made the designation.
Non-bank SIFIs in general won a big victory on Wednesday when a trio of bank regulators approved tough rules for big bank liquidity requirements but said the regulations won't directly apply to large nonbank institutions designated as systemically important by the council of regulators. This was a major change from the original proposal, which would have subjected them to the liquidity regulation. Federal Reserve Governor Daniel Tarullo, the top central bank official responsible for bank supervision, said that liquidity rules will be set up for each of those nonbank systemic institutions based on a review of their business models.