The federal Financial Stability Oversight Council, under the leadership of Treasury Secretary Yellen, will probably revive the Obama Administration view that large financial firms that own operating insurance companies are fit candidates for designation as “systemically important financial institutions,” whose solvency will ultimately be regulated by the Federal Reserve. Section 113 of the Dodd-Frank Wall Street Reform and Consumer Protection Act created the Council, and authorized it to make such designations, even though insurers themselves would remain subject to state regulation. The Council is comprised of key federal financial officials, such as the Chairman of the Federal Reserve Board of Governors, the head of the Securities and Exchange Commission, the Comptroller of the Currency, and the head of the Commodities Futures Trading Commission, with one member with insurance expertise. The head of the Federal Insurance Office is a non-voting member, as is one current state insurance regulator designated by the NAIC.
Beginning in 2012, AIG, and then Prudential, were designated as “systemically important financial institutions” (over the objection of the insurance expert in Prudential’s case). In 2014, MetLife was also so designated (again over the objection of the Council’s expert on insurance). In 2016, the federal District Court for the District of Columbia granted MetLife’s motion for summary judgment, holding that the Council had acted arbitrarily in designating MetLife without reasonably rigorous analysis. MetLife Inc. v. Financial Stability Oversight Council, 177 F. Supp. 3d 219 (D.D.C. 2016) (Collyer, J.). The Council appealed the decision.
The Trump Administration abandoned the Government’s appeal in Metlife Inc., and MetLife was formally de-designated in 2017. The other two designees who owned insurers were also subsequently de-designated.
Today, the Biden Administration’s financial regulatory agencies are stocked with Obama-era officials, such as Gary Gensler (nominated to be the SEC head), and Secretary Yellen herself (whom President Obama chose to be the Federal Reserve Chairman), both of whom had approved some of those prior designations. So one should not be surprised if large financial companies whose holdings include operating insurers are again under the Council’s scrutiny for Federal Reserve oversight. Hopefully, if any designations occur like those involving MetLife and Prudential, officials will heed Judge Collyer’s thoughtful opinion dissecting the flaws in the Council’s designation of...
