Federal regulators on Thursday took up the fight for their right to label certain financial institutions as “too big to fail” after a U.S. District Court threw out their designation of the insurance company MetLife earlier this year.
The Financial Stability Oversight Council, a body of regulators led by the Treasury Department, said in April that it would contest the decision. Late Thursday, the government filed its first substantive brief in its appeal.
The Dodd-Frank Act gave the council, which includes the heads of the banking agencies, the authority to designate large nonbanks as “systemically important” to prevent the kind of fallout seen from the near-collapse of American International Group during the financial crisis. The institutions so designated will be subject to greater capital requirements and regulatory scrutiny.
“The district court overturned the collective judgment of the heads of the nation’s financial regulatory agencies that material distress at MetLife could pose a threat to the country’s financial stability,” the council, which is being represented by the Justice Department, said in the brief. “The court’s ruling leaves one of the largest, most complex and most interconnected financial companies in the country without the regulatory oversight that Congress found essential.”
In addition to MetLife, regulators have designated AIG, Prudential Financial and General Electric’s finance unit.
MetLife is the only company to combat the label in court so far. Judge Rosemary M. Collyer of the Federal District Court for the District of Columbia ultimately ruled in favor of the insurer in March.
The judge said that the council had failed to assess the likelihood of MetLife’s going under and the impact that severe material distress at the company would have on the financial system at large.
The council sought to address those concerns in its filing on Thursday with the U.S. Court of Appeals for the District of Columbia Circuit, calling the lower court judge’s analysis of its efforts “profoundly mistaken.”
A MetLife spokesman said that the company “will respond to the government’s brief in its own filing by Aug. 15.”
MetLife has announced plans to spin off its Charlotte-based U.S. retail unit but has said the separated company will remain based here.