A letter sent to Treasury Secretary Jacob Lew by a member of Congress Monday betrays the government’s new inability to apply tight standards to the nation’s largest insurance companies.
Representative Scott Garrett, chairman of the House Financial Services Committee’s subcommittee on capital markets, asked Lew how the US could apply new regulatory standards to insurers following the decision of a federal judge this month to end oversight of
MetLife Inc.
The decision, which reversed MetLife’s designation as “systemically important,” questioned whether the Financial Stability Board was applying appropriate procedures for determining the importance of a non-banking entity to the US financial system. In its wake, two other insurers –
AIG and Prudential – are now considering challenges to their own SIFI labels.
The Obama administration has launched an appeal on the decision, but even if it wins, the process of reversal could take months.
In the letter, Garrett asked Lew for a series of documents related to the work of the FSB and questioned whether Lew plans to continue applying strict international standards to SIFI insurers in the wake of the judge’s decision.
At particular issue is whether, in light of the case, the US can fulfill its promise to other countries to apply strict capital standards and other regulations on its biggest financial institutions. State regulators in New York will continue to exert some control over MetLife, but authorities question whether this oversight is strong enough to fulfill the country’s promise.
Garrett has joined the US insurance industry in its criticism of the Financial Stability Board, arguing that its published list of “globally systemically important insurers” subject to greater supervision was developed before US regulators decided to apply the stricter rules to domestic insurers.
MetLife, for example, was included in the July 2013 list created by the FSB, but wasn’t designated with a SIFI label in the US until December 2014.
AIG received the label in July 2013 and Prudential received it later that year in September.
Lew has previous said the US and international processes for determining SIFI designations are separate and that US regulators made their own judgement on MetLife and other firms without regard to the July 2013 FSB list.
A Treasury spokesman confirmed the receipt of the letter to the
Wall Street Journal and said it is reviewing it.
