(Reuters Breakingviews) - MetLife is giving harried financial watchdogs yet another risk to ponder. U.S. courts have squelched a slew of securities and commodities rules. Designations of systemically important financial institutions, known as SIFIs, may be next, as the insurer with $900 billion of assets challenges its big-and-risky status.
MetLife on Tuesday sued the Financial Stability Oversight Council for naming it a non-bank SIFI. The company argues the move was "fatally premature" because capital and other requirements for the insurance industry don't even exist yet. That, says MetLife, makes FSOC's behavior "arbitrary and capricious," the legal standard for overturning agency rulemaking.
It's a high - but not insurmountable - hurdle. In 2011, for example, a federal appeals court struck down the Securities and Exchange Commission's proxy access rule, which would have made it easier to challenge corporate boards. The court said the SEC hadn't paid enough attention to the regulation's potential economic effects.
Another U.S. court ruled in 2013 that a Commodity Futures Trading Commission cap on certain transactions was ambiguous and insufficiently justified. And an appeals court decided last year that an SEC regulation violated companies' free speech by requiring them to disclose whether their products contained specified African minerals. That ruling is under review.
Financial watchdogs have in the past decade lost at least six challenges in the Washington, D.C. federal appeals court alone. Many investor advocates attribute the losses to Republican judges who until recently held a majority of the court's seats. Yet some of the jurists ruling against the rules were Democratic appointees.
It's no coincidence that most of the questionable regulations were created pursuant to the Dodd-Frank financial reform. Sprawling post-crisis legislation passed under pressure can't help but contain flaws, and rulemakers working in haste risk further sloppiness.
The watchdogs have sometimes given the required cost-benefit analysis short shrift and too quickly dismissed the concerns of expert critics. The CFTC, for example, drew a harsh rebuke from judges for not bringing "its expertise and experience to bear."
Scrutiny will only grow more intense as banks and other companies, like MetLife, try to beat back regulation that might limit their business or increase their costs. That's reason enough to make sure that rulemaking is as watertight as possible.
CONTEXT NEWS
- MetLife, the largest U.S. life insurer, on Jan. 13 asked the federal District Court for the District of Columbia to overturn its status as a non-bank systemically important financial institution. The Financial Stability Oversight Council conferred the designation last month.
- In its legal complaint, MetLife listed several reasons why FSOC's move was "arbitrary and capricious," the standard for overturning regulatory decisions. Most notably, the insurer argued that the designation was "fatally premature," because the Federal Reserve will probably take months to finalize capital and other requirements for the insurance industry. (The author is a Reuters Breakingviews columnist. The opinions expressed are his own.)
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