We still don’t know why, exactly, MetLife is no longer a systematically important financial institution, pending appeal. Did the judge buy its argument that insurers are pussycats who couldn’t possibly bring the global financial system to its knees, except for that one time one of them did? Or that it might make sense to write the regulations that will govern insurers before willy-nilly slapping the SIFI tag on them? Or that the Financial Stability Oversight Council is being a little capricious and arbitrary in deciding who gets one? We don’t actually know, yet, since the ruling is still under seal. But the Times’ Peter Eavis is pretty sure we’ve got nothing to worry about.
The week may give the impression of a rollback, but a wider view shows that Dodd-Frank is mostly intact — and exacting slow, steady results.
The act has stamped out many risky practices. The largest banks are operating with substantially higher levels of capital — the financial foundation of a bank. The largest banks appear to be slowly shrinking.
Why, just look at the next company about to be an NSIFI: GE. Unlike MetLife, which had to go and get the courts involved, GE took affirmative action to get out from under the Fed’s thumb—in other words, it sold a bunch of stuff.
On the other hand, if U.S. District Judge Rosemary Collyer, got a little frisky (and is upheld on appeal), well, start provisioning your financial apocalypse bunker once again.
A ruling that requires the council to jump through a lot more hoops — like performing cost analyses — could slow it down considerably. That might not seem like such a big deal now, when markets appear to be relatively stable.
But imagine a situation like the lead-up to 2008. A.I.G. placed huge and risky bets over a relatively short period, rapidly turning itself into a danger to the system. The council, operating under new restrictions meant to slow it down, might not be able to stop another A.I.G. before it’s too late.
And then the battles over “too big to fail” would be right back where they started.
A Dodd-Frank Watchdog Still Growls, on a Slightly Tighter Leash [NYT The Upshot blog]