Treasury to Weigh Changes, Hear MetLife Challenge on Systemic Risk

By | October 6, 2014

U.S. Treasury Secretary Jacob J. Lew said a council of financial regulators will consider changes to how it evaluates companies for systemically important designation.

The Financial Stability Oversight Council “will begin to consider possible changes in the coming months” after receiving feedback from the financial industry and others about its designation process, Lew said at an FSOC meeting at the Treasury in Washington today. He didn’t elaborate on what changes might be made.

Lew also said the council had agreed to give a non-bank financial company an oral hearing. MetLife Inc., the largest U.S. life insurer, said Oct. 3 it is challenging the council’s finding that it is systemically important and should be subjected to Federal Reserve oversight.

Financial industry executives and Republican lawmakers have said the FSOC hasn’t been transparent enough in its evaluation of non-bank companies for the systemically important designation.

The council discussed the asset-management industry in a part of the meeting closed to the public, the Treasury said in a statement today. The regulators “discussed areas of focus and potential risks, as well as processes for seeking input and evaluating information.”

Asset Managers

The council also received an update from the Securities and Exchange Commission on asset manager risk-management policy initiatives, the Treasury said.

After discussing asset managers BlackRock Inc. and Fidelity Investments in October 2013, the FSOC this year has slowed its deliberations on individual asset firms.

The FSOC on Sept. 4 proposed designating MetLife by a 9-0 vote, with council member Roy Woodall, a former Kentucky insurance regulator, voting “present.” The vote count was included in the meeting minutes released today by the Treasury. Though the department didn’t name MetLife, the insurer identified itself as having received a proposed designation.

Non-voting member John Huff, director of Missouri’s insurance department, “expressed several areas of concern with the basis of the proposed designation,” according to the minutes.

‘Firm-Specific Risks’

The council also discussed asset managers at the Sept. 4 meeting, including “work related to analyzing industry-wide and firm-specific risks,” according to the minutes. After discussing council members’ priorities for “the analysis of potential risks” associated with the asset-management industry,” the council told its staff to develop a plan for “carrying out the analysis of industry-wide products and activities.”

Created by the 2010 Dodd-Frank law, the council is charged with monitoring potential threats to the financial system. Under Dodd-Frank, bank-holding companies with more than $50 billion in assets, such as Citigroup Inc. and JPMorgan Chase & Co., are overseen by the Fed. Lew is chairman of the council, whose 10 voting members also include the heads of the Fed, SEC and Federal Deposit Insurance Corp.

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