Ruling Behind MetLife’s ‘Too Big to Fail’ Reprieve Unsealed

The financial industry now has more information about why a court allowed MetLife to shed its “too big to fail” label last week, in a major setback for supporters of the Dodd-Frank Act.

A federal judge ruled on March 30 that regulators failed to properly name the country’s biggest life insurer as “systemically important.” But the decision itself was under seal until it was made public on Thursday.

The ruling shows that Judge Rosemary Collyer of the Federal District Court for the District of Columbia was unimpressed with core aspects of the analysis underpinning the MetLife designation. The judge also found that regulators failed to properly account for the expected costs of heightened oversight under the designation.

The Treasury Department said on Thursday that the government would appeal the district court’s decision.

Treasury Secretary Jacob J. Lew, who leads the Financial Stability Oversight Council, which oversees the health of the financial system, said in a statement earlier on Thursday that regulators planned to “continue defending vigorously the process and the integrity of F.S.O.C.’s work,” expressing confidence that the government will prevail.

“In overturning the conclusions of experienced financial regulators, the court imposed new requirements that Congress never enacted, and contradicted key policy lessons from the financial crisis,” Mr. Lew added.

The opinion, however, contained an important silver lining for regulators.

Judge Collyer threw out the insurer’s argument that it was ineligible for designation, which could give the council the opportunity to reissue the label if the government loses its appeal.

The verdict is not that MetLife is immune from designation, said Aaron Klein, a fellow at the Brookings Institution and a former Treasury official, but instead rests on two arguments that the F.S.O.C. didn’t do enough work to merit the designation.

Judge Collyer determined that the regulatory council fell short in its designation process in several areas.

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