Court decision deals blow to ‘too big to fail’

by Ryan Smith07 Apr 2016
A U.S. district judge has dealt a blow to the government’s ‘too big to fail” designation.

Judge Rosemary M. Collyer rescinded MetLife’s designation as a “systemically important financial institution” (SIFI) last week. In Collyer’s decision, unsealed today, she wrote that the government’s Financial Stability Oversight Council should not have designated MetLife as a SIFI because it didn’t first evaluate the institution’s vulnerability to financial distress, according to a Bloomberg report.

Collyer wrote that the FSOC’s decision to declare the insurer too big to fail was “arbitrary and capricious,” and that the committee failed to follow its own guidelines when it concluded that MetLife was a threat to the country’s economic stability, Bloomberg reported.

“FSOC reversed itself on whether MetLife’s vulnerability to financial distress would be considered and on what it means to threaten the financial stability of the United States,” Collyer wrote.

MetLife had sued the government to remove the SIFI designation, saying it imposed requirements that would raise prices for its customers. The court’s decision may free up more than $2.5 billion that could be returned to shareholders, John Nadel, analyst for Piper Jaffray, told Bloomberg.

Collyer’s decision was also a win for House Republicans looking to gut the Dodd-Frank Act, which they say shackles businesses with onerous regulation.

“One of the greatest dangers facing hardworking taxpayers is the Financial Stability Oversight Council’s power to designate certain companies as so-called SIFIs, because today’s SIFI designations are just tomorrow’s taxpayer-funded bailouts,” House Financial Services Committee Chairman Jeb Hensarling (R-Texas) said when the decision was handed down last week. “SIFI is Washington’s way of officially anointing these companies as too big to fail, despite promises that the Dodd-Frank Act would end too big to fail. Designation also ominously grants the Federal Reserve near de facto management authority over such institutions, thus allowing huge swaths of the economy to potentially be controlled by the federal government.”


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