MetLife CFO Laments Difficulty of Defining ‘Systemic’

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John Hele
MetLife CFO John Hele. Photographer: Ian Waldie/Bloomberg

MetLife Inc. Chief Financial Officer John Hele said financial watchdogs failed to define what they mean by “systemic” before working on new rules for companies that are designated a risk to the financial system.

“Global regulators have really put the cart before the horse, the cart being capital and other standards,” Hele said Thursday in a conference held by the Institute of International Finance in New York. “The horse should be what is systemic.”

MetLife has sued the U.S. to overturn its designation as a non-bank systemically important financial institution. Chief Executive Officer Steve Kandarian has said that the financial system could endure MetLife’s failure, and that his industry is safer than banking, because it is harder for a client to pull money from an insurance contract than to withdraw from a bank at at time of crisis.

“We can all agree that the banking model, the traditional bank business, is systemic,” Hele said. “When you move beyond that, what is truly systemic? And that is where the thought, the research should really be happening.”

MetLife, the largest U.S. life insurer, has also been designated globally systemic by international rule makers, meaning the New York-based company could face tougher capital standards. The U.S. Financial Stability Oversight Council in December cited MetLife’s holdings of hard-to-sell securities and reliance on derivatives as among the reasons why the insurer qualifies for Federal Reserve supervision.

Kandarian said at a conference Wednesday that MetLife is already effectively supervised in the U.S. by state regulators.

The Fed has 70 people with insurance expertise as it looks to create “tailored” rules to regulate the industry’s SIFIs, Thomas Sullivan, associate director of the central bank’s board of governors, said at the conference.

The Fed has taken a seat at the International Association of Insurance Supervisors though it’s still “relatively the new kid on the block,” Sullivan said.

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