Bloomberg News

Systemic-Risk Firms Will Get ’Robust’ Due Process

May 15, 2012

Companies that may be labeled systemically important to the U.S. financial system would get “robust due process protections” before any designation, a Treasury official plans to tell a congressional panel tomorrow.

“Every designation decision will be firm-specific, and every firm will receive robust due process protections, including the opportunity for judicial review of any final designation,” Lance Auer, Treasury deputy assistant secretary, says in prepared testimony to be delivered tomorrow. The testimony was obtained by Bloomberg News.

A House Financial Services subcommittee will examine the impact of a rule issued by the Financial Stability Oversight Council in April. The rule gives the council the authority to designate a non-bank company as systemically important and subject to Federal Reserve supervision.

Large non-bank firms have resisted the designation. Firms designated as systemic will receive heightened supervision from the central bank. The Fed could require firms to raise capital and reduce risky practices. The companies also would have to file “living wills” so they could be unwound in an orderly way.

William Wheeler, president of the Americas Division of Metlife Inc., will testify tomorrow that traditional life insurance activities do not pose a systemic risk to the U.S. economy.

“Whether a sifi designation is a help or a hindrance, it seems certain that naming a handful of insurance companies as ’too big to fail’ will needlessly distort the competitive landscape and misallocate capital in the insurance sector,” Wheeler says in prepared testimony.

The acronym “sifi” refers to a systemically important financial institution whose failure could pose a threat to U.S. financial stability. MetLife is the largest U.S. life insurer..

To contact the reporters on this story: Cheyenne Hopkins at Chopkins19@bloomberg.net; Phil Mattingly in Washington at pmattingly@bloomberg.net

To contact the editor responsible for this story: Christopher Wellisz at cwellisz@bloomberg.net


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