Representative Garrett Requests More Information on "SIFI" Designation Process
Commentary by Steven Lofchie
Representative Scott Garrett, who is Chairman of the Capital Markets and Government Sponsored Entities Subcommittee, wrote a letter to U.S. Treasury Secretary Jacob Lew to request additional information about FSOC's designation process and its future intentions concerning the designation of insurance companies and investment advisers. Representative Garrett's request comes in the wake of the D.C. District Court's finding that the Financial Stability Oversight Council ("FSOC") did not comply with its own internal procedures in designating MetLife as a systemically important financial institution ("SIFI").
Representative Garrett began by criticizing FSOC's designation process for being "expedien[t] over thoughtful deliberation" and unduly influenced by the interests of non-U.S. regulators. He also noted that FSOC is dominated by "prudential" (i.e., banking) regulators and expressed concern that "broad swaths" of the U.S. economy are not sufficiently represented at FSOC.
Representative Garrett also asked FSOC to offer something more publicly than a "cursory description" of FSOC's data, as well as research relating to the asset management industry.
Commentary
As Representative Garrett points out, the court's rejection of the SIFI designation of MetLife carries significance for not only the insurance industry, but also the asset management industry, since FSOC effectively has indicated its inclination to name asset managers as systemically significant.
The notion that asset managers are systemically significant seems questionable because they are not themselves large institutions measured by equity, but instead are only large insofar as they manage others' money. This means that any SIFI designation of an asset manager would be meaningless if applied to the manager's own equity or financing. Rather, FSOC's interest in designating asset managers as SIFIs implies that FSOC has an interest in controlling asset managers' decisions on behalf of their advised clients. If that implication were to bear fruit, the result would be troubling, since it would mean that the government could control investment decisions made by private parties, which in turn would reflect a remarkable expansion of governmental power.
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Treasury Secretary Jacob Lew issued a statement arguing that a federal court's decision to rescind the determination that MetLife was a so-called "systemically important financial institution" leaves one of the "largest and most highly interconnected financial companies in the world subject to even less oversight than before the financial crisis."
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The U.S. District Court for the District of Columbia rescinded the Financial Stability Oversight Council's determination that MetLife was a so-called "systemically important financial institution" eligible for enhanced regulatory supervision. The Court found that the determination "hardly adhered to any standard."