MetLife’s insurance business should not be
governed by regulations written for banks, according to William J.
Wheeler, president of the Americas division at MetLife.
This was the argument prepared for Wheeler’s
recent testimony to the US House of Representatives’ Financial
Institutions and Consumer Credit Subcommittee.
Go deeper with GlobalData
The hearing – titled “The
Impact of the Dodd-Frank Act: What It Means to be a Systemically
Important Financial Institution”– was scheduled for 16 May
2012.
Wheeler said MetLife recognises the importance
of managing systemic risk and the need for sensible regulations to
protect taxpayers from costly bailouts.
‘Balance needed’
In his testimony, Wheeler argued: “Striking
the right balance is a large part of the challenge to ensure that
we capture the benefits of regulation without imposing
unnecessarily burdensome costs.”
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By GlobalDataAs the largest life insurance company in the
US, which is also a bank holding company, Wheeler said MetLife’s
experience as insurance company regulated by the Federal Reserve
has provided it with unique insight into the pitfalls of applying
bank-centric rules to non-bank financial companies.
“Indeed, it is because we do not believe our
insurance business should be governed by regulations written for
banks that we have decided to sell our depository business,” said
Wheeler.
Wheeler said: “Some commentators believe that
naming MetLife and other large life insurance companies as
[systemically important financial institutions] SIFIs would give us
a competitive advantage over our smaller rivals.”
He acknowledged that the implicit backing of
the federal government could strengthen perceptions of MetLife’s
creditworthiness and could provide a significantly cheaper cost of
funds than its peers.
However, Wheeler was of another opinion; “At
the other end are those who believe that insurance companies deemed
SIFIs would be placed at a competitive disadvantage. They would
have to hold more capital and maintain higher liquidity levels,
which would reduce returns on equity for shareholders and impose
higher prices on customers.”
Too big to fail
In Wheeler’s view, it seems certain that
naming a handful of insurance companies as “too big to fail” would
needlessly distort the competitive landscape and misallocate
capital in the insurance sector.
He said if largest life insurers in the US are
named SIFIs and subjected to unmodified bank-style capital and
liquidity rules, their ability to issue guarantees would be
severely constrained at a time when governments are facing their
own fiscal challenges.
“Faced with costly requirements, insurers
would either have to raise the price of the products they offer,
reduce the amount of risk they take on, or stop offering certain
products altogether,” said Wheeler.
