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MetLife Decision Could Torpedo Dodd-Frank Risk Protections 

March 31, 2016

Stephen J. Lubben, The New York Times

I’ll admit that I am shocked by a federal judge’s order allowing MetLife to shed its “too big to fail” designation.

After all, the decision by federal regulators to select a financial institution for extra regulation based on its potential risk to the American economy seems very close to a “bulletproof” or judiciary-proof decision.

The regulators’ decision is subject to review under an “arbitrary and capricious” standard, and presumably subject to a good dose of the “Chevron deference,” a legal principle that says courts should defer to regulators’ interpretations of laws unless they’re unreasonable. Add in the fact that bank regulators already get a good bit of deference from courts and you see why it seemed likely that the designation by the Financial Stability Oversight Council (FSOC) would hold up.

But it didn’t. And if the Federal District Court’s decision withstands an appeal — an admittedly big if — I think we have to ask if a single federal judge didn’t just blow a huge, MetLife-size hole in Dodd-Frank.

After all, if F.S.O.C. can’t designate MetLife, who can it designate? MetLife has an enormous bond portfolio, a large derivatives book, substantial real estate holdings and big-time connections with other systemically important financial institutions. Size alone is not enough, but it sure appears plausible that a failure of MetLife could cause problems. Read more

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