D.C. District Court Rescinds FSOC’s Designation of MetLife as Systemically Important: Decision Cites “Fundamental Violations of Established Administrative Law,” Including a Failure to Consider the Costs of Regulation and Unexplained Deviations From Prior Regulatory Guidance

Sullivan & Cromwell LLP - April 7, 2016
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On March 30, 2016, in MetLife, Inc. v. Financial Stability Oversight Council, Judge Rosemary M. Collyer of the U.S. District Court for the District of Columbia (the “Court”) rescinded the designation of MetLife, Inc. (“MetLife”) by the Financial Stability Oversight Council (“FSOC”) as a systemically important nonbank financial company under Section 113 of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”).

The Court concluded that, although MetLife is a “nonbank financial company” eligible for designation under Section 113 of the Dodd-Frank Act, FSOC’s basis for designating MetLife was fatally flawed in at least three respects.

  • First, FSOC deviated from its own guidance without explanation by failing to assess MetLife’s actual vulnerability to financial distress.
     
  • Second, FSOC failed to establish a basis for a finding that MetLife’s material financial distress would cause “an impairment of financial intermediation or of financial market functioning that would be sufficiently severe to inflict significant damage on the broader economy,” within the meaning of FSOC’s guidance.
     
  • Third, FSOC failed to weigh the perceived benefits of designating MetLife against the possible costs of taking such action, including the possibility that “imposing billions of dollars in cost could actually make MetLife more vulnerable to distress.” 
MetLife raised other grounds for rescinding the designation, but the Court concluded that these three flaws were sufficient to justify granting the relief requested by MetLife and did not reach those other grounds.