The Department of Justice filed a motion to dismiss in MetLife's court challenge to its SIFI designation. MetLife filed the suit in January, but to prevail must show that the FSOC's decision was "arbitrary and capricious," the relevant standard under the provisions of Dodd-Frank. The partially redacted filing shed light on the decision to designate what the DOJ argues is "one of the largest financial services companies of any kind" with over $900 billion in consolidated assets.
The filing explained that the "designation came after 17 months of close analysis of the company, during which the Council or its staff met with MetLife over a dozen times, reviewed nearly 21,000 pages of material submitted by the company, and issued a 270-page proposed decision that the company challenged in both a written and an oral hearing before the Council." Further, the final determination was delivered in a non-public 341-page document and a 31-page public version. In the filing, the DOJ notes that the FSOC accepted every meeting request from MetLife, allowed the company to bring any party to the meetings, and granted all requests for presentations on any topic and for extensions of deadlines. The Council itself discussed the analysis and designation decision at eight meetings spanning a year-and-a-half period.
According to the filing, the FSOC based its decision on its belief that "material financial distress" at MetLife "could pose a threat to the financial stability of the United States," one of two standards under which a nonbank can be designated a SIFI. The filing notes two "channels" through which the FSOC felt that MetLife could threaten the financial stability of the United States: the risk to market participants caused by exposures to the company if the company is unable to meet financial obligations, and the potentially destabilizing effects of a fire sale of company assets on financial markets.
The filing notes that MetLife's activities reach beyond those traditionally considered associated with the life insurance business. Three areas of concern identified by the FSOC were MetLife's $35 billion funding-agreement-backed notes and commercial paper business, its $30 billion securities lending business, and its $48 billion guaranteed investment contracts business. The FSOC felt that each of these liabilities, in times of stress, could mean that MetLife would be unable to meet its financial obligations.