Compass Lexecon Senior Affiliate Professor Christopher L. Culp and Chicago Booth Professor Pietro Veronesi Filed Joint Report
On March 30, 2016, Washington, D.C.’s federal district court Judge Rosemary M. Collyer rescinded the designation of MetLife, Inc. as a “systemically important financial institution” (SIFI) that had been applied to the company by the Financial Stability Oversight Council (FSOC) in December 2014. Under the Dodd-Frank Act, the FSOC may designate non-bank financial institutions as SIFIs if it deems that the failure of such institutions pose a risk to the financial system.
The FSOC is a panel comprised of U.S. financial regulators and chaired by the Secretary of the Treasury that is charged with identifying firms whose failures could pose a systemic threat to the financial system as a whole. Non-financial firms designated by the FSOC as SIFIs are subject to prudential regulation by the Federal Reserve, including any applicable capital and liquidity requirements. MetLife was the third insurance conglomerate to receive such a SIFI designation, following the classifications of AIG and Prudential as SIFIs in July 2013 and September 2013, respectively.
MetLife presented its case to the FSOC in opposition to the FSOC’s proposed designation of the firm as a SIFI, but the FSOC ultimately classified MetLife as a SIFI. As counsel for MetLife, Gibson, Dunn & Crutcher LLP engaged Compass Lexecon to assist in its response to the proposed FSOC designation of MetLife as a SIFI. Compass Lexecon Senior Affiliate Professor Christopher L. Culp and University of Chicago Booth School of Business Roman Family Professor of Finance and Robert King Steel Faculty Fellow, Pietro Veronesi (who regularly collaborates with Professor Culp and Compass Lexecon) submitted a report to the FSOC that analyzed MetLife’s potential systemic risk arising from the firm’s derivatives activities. Professors Culp and Veronesi addressed in their report whether the evidence indicated that the nature, size, and scope of MetLife’s derivatives activities were sources of any significant systemic risks.
In January 2015 – the month after MetLife’s SIFI designation – MetLife filed suit against the FSOC, arguing that the designation of MetLife as a SIFI was “arbitrary and capricious, conflicts with the [FSOC’s] statutory obligations under the Dodd-Frank Act and the rules and guidance that the [FSOC] promulgated for designating nonbank financial companies, and was reached through a procedure that denied MetLife its due process rights and violated the constitutional separation of powers.” The district court agreed that FSOC’s designation of MetLife had been arbitrary and capricious and conflicted with FSOC’s rules and guidance and rescinded the designation.
Professors Culp and Veronesi were supported by Compass Lexecon professionals Peter B. Clayburgh, Rajiv B. Gokhale, Andria van der Merwe, Andrea Neves (a Compass Lexecon affiliate consultant), Jonathan D. Williams, and others. MetLife was successfully represented by Eugene Scalia, Amir C. Tayrani, Ashley S. Boizelle, and Indraneel Sur of Gibson, Dunn & Crutcher LLP.