MetLife, the parent company of the Metropolitan Life Insurance Company, is one of the largest financial institutions in the world. Founded in New York City approximately 150 years ago, the firm now manages insurance, annuity, and employee benefit programs for 90 million people across the globe.
It’s an important firm, isn’t it? That’s why U.S. government officials voted to propose that MetLife be labeled a “systemically important” financial institution. Such a decision would serve to acknowledge the insurer’s dominant position within the nation’s economic system. And, accordingly, it would place the insurer under a more intensive spotlight of oversight and regulation.
Understandably, MetLife is eager to avoid any additional regulatory oversight activities, especially in light of its high profile failure of a government “stress test” two years ago. Thus, it is acting vigorously to avoid the “systemically important” label, even going so far as to threaten the government with a lawsuit.
To a certain extent, we can certainly understand MetLife’s argument about the inappropriateness of being labeled a “systemically important” financial institution. After all, the firm only began to expand from its insurance origins into the banking sector in 2001. And it didn’t receive any TARP bailout funds at all during the 2008 – 09 global financial crisis.
On the other hand, during the crisis in the autumn of 2008, American Express, Goldman Sachs, and Morgan Stanley all converted their corporate structures into bank holding companies in order to qualify for billions of dollars in TARP funds. One can easily argue that MetLife, by refraining from any reliance on TARP funding, should (out of a simple sense of fairness) be spared the levels of oversight that are now imposed on these other institutions.
And yet three non-bank institutions — AIG, GE Capital, and Prudential — have now been labeled “systemically important.” How can one argue that MetLife deserves to be excluded from this group?
So what should we make of MetLife? Is it a “systemically important” firm? Should a global financial giant that did not accept TARP funds, but that did fail a stress test in 2012, be given a label that draws enhanced regulatory scrutiny?
As the global financial crisis recedes into history for contemporary decision makers, it becomes less relevant than recent events. Because MetLife failed a stress test just two years ago, and given its current dominant position in the insurance sector, its designation as a “systemically important” institution may be inevitable.