Republicans call on Mnuchin to rescind nonbank SIFI designations

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WASHINGTON — A group of 10 Republican senators are calling on Treasury Secretary Steven Mnuchin to drop the government’s appeal of a ruling last year that rejected the insurance giant MetLife’s designation as a systemically risky firm and to dedesignate the only other two nonbanks labeled as a potential threat to the economy.

The group, led by Sen. Tom Cotton, R-Ark., sent Mnuchin a letter on Tuesday asking him to use “all of the tools available to the Secretary of Treasury” to end government bailouts, and said the Financial Stability Oversight Council’s process for designating nonbanks as systemically important financial institutions is opaque and flawed. The nine other signatories on the letter were: Banking Committee Chair Mike Crapo, R-Idaho; former panel chair Richard Shelby, R-Ala.; Pat Toomey, R-Pa.; Mike Rounds, R-S.C.; John Kennedy, R-La.; Ben Sasse, R-Neb.; David Perdue, R-Ga.; Thom Tillis, R-N.C.; and Tim Scott, R-S.C.

A spokeswoman for Cotton said the letter aims to rescind the two remaining nonbank designations, for American International Group and Prudential, and to persuade Mnuchin to drop the agency’s appeal of last year’s ruling striking down the FSOC’s designation of MetLife.

“Senator Cotton wants dedesignation of the nonbank SIFIs and an overhaul of FSOC to prevent future arbitrary designations,” the spokeswoman said. “And by dropping the FSOC MetLife appeal, they can effectively de-designate MetLife with ease, without having to go through a long FSOC process.”

In a statement accompanying the letter, the lawmakers noted that the “FSOC's recent designation of a nonbank was overturned by a federal judge for being arbitrary and capricious,” suggesting that other designations are similarly untenable.

Since the creation of the FSOC, an interagency council chaired by the Treasury secretary charged with identifying systemic risks and entrusted with the power to subject nonbanks to banklike prudential regulations, only four firms have been designated: the insurers American International Group, Prudential and MetLife and the financial services firm GE Capital. GE Capital reorganized its business and was dedesignated by the council last June; MetLife fought its designation in court last year, and won.

The letter encouraged Mnuchin to use the opportunity of President Trump’s executive order calling for a review of financial regulations to examine the FSOC’s remaining nonbank designations.

“As part of your review and report on the existing laws, regulations, guidance and government policies … we hope that you will review the policies and procedures underlying the [FSOC’s] determination that a nonbank financial company shall be subject to supervision by the Board of Governors of the Federal Reserve System and subject to enhanced prudential standards,” the letter says. “The designation process has created substantial new regulatory costs while putting taxpayers on the hook for any future bailout to these firms.”

AIG and Prudential, for their parts, have been relatively quiet on the matter of their designations. Prudential has never made public statements about its designation, while AIG has said on several occasions that it has no issue with its designation. Neither, MetLife, AIG or Prudential immediately responded to a request for comment.

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SIFIs Finance and investment-related court cases Steven Mnuchin MetLife AIG Prudential