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MetLife Deemed 'Systemically Important'
From the Wall Street Journal of Fri, 19 Dec 2014 11:32:23 EST

WASHINGTON—Top financial regulators were not unanimous in their decision Thursday to designate MetLife Inc. as “systemically important,” according to a release from the government oversight body.

The Financial Stability Oversight Council voted 9-1 on Thursday to formally label the New York insurer, bringing it under tougher oversight by the Federal Reserve. The dissent could factor into MetLife’s decision on whether to mount a legal challenge against the government. MetLife has 30 days from the vote to decide whether to sue.

The council’s independent insurance expert, S. Roy Woodall, voted against designating MetLife. Mr. Woodall, who had previously voted against the decision by the council last year to designate Prudential Financial Inc., said in a statement that he wasn’t persuaded by the council’s case, and that “MetLife has presented a comprehensive response to the flaws in the Council’s basis for proposed determination.”

The rest of the council concluded that MetLife’s size, close links with other financial firms and the nature of certain of its products and capital-markets activities mean that during a crisis, trouble at MetLife could easily spread to other parts of the financial system, according to a 31-page summary of its rationale. The council on Thursday gave a more thorough analysis, with well over 300 pages, to MetLife.

“After a year and a half of extensive and in-depth analysis—including significant engagement with the company—the Council has determined that material financial distress at MetLife could pose a threat to U.S. financial stability,” said Treasury Secretary Jacob Lew , who leads the council. He called the council’s power, granted by the 2010 Dodd-Frank law, to designate nonbank firms as systemically important “a critical tool for the Council to address potential threats” to the U.S. financial system.

MetLife Inc. said Thursday that it is “disappointed” by the ruling and believes it has presented “substantial and compelling evidence” that any future financial problem wouldn’t jolt the U.S. economy during a time of stress. It maintains it is adequately capitalized under state regulations.

The council’s designation rests strongly on concerns that the nation’s largest life insurer by assets might have to dump substantial numbers of bonds from its investment portfolio at fire-sale prices if it ran into extreme financial distress, destabilizing capital markets and hurting other investors who own those bonds by pushing prices down further.

The report details the many insurance and investment products in which MetLife is a leader, including selling guaranteed investment contracts to employers for their benefits programs and insurance and guaranteed-lifetime-income contracts to baby boomers. It notes that many of the products involve use of financial derivatives to minimize risk to MetLife, yet “efforts to hedge such risks through derivatives and other financial activities are imperfect and further increase MetLife’s complexity and interconnectedness with other financial markets participants.”

“As history has shown, including in 2008, financial crises can be hard to predict and can have consequences that are both far-reaching and unanticipated,” the summary says.

While MetLife is regulated by various state, federal and international authorities, it isn’t subject to “consolidated supervision,” the summary states. While some of the company’s regulators “may be effective in mitigating the risks arising from an insurance company, these authorities have never been tested by the material financial distress of an insurance company of the size, scope and complexity of MetLife’s subsidiaries,” the summary says.

Write to Victoria McGrane at and Leslie Scism at

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