Following the financial crisis of 2008, Congress enacted the Dodd-Frank Wall Street Reform and Consumer Protection Act to strengthen the financial regulatory system and prevent the excessive risk-taking by banks and other financial institutions that led to the Great Recession. As a critical component of establishing comprehensive financial regulation, Dodd-Frank established the Financial Stability Oversight Council (FSOC) to identify risks and respond to emerging threats to financial stability. Significantly, the FSOC has the authority to designate a non-bank financial institution as worthy of additional supervision if it concludes that financial distress at such an institution, regardless of the likelihood that it will happen, could pose a threat to the general financial stability of the United States.

Following an extensive review of MetLife, including written and oral hearings, the FSOC designated MetLife as a non-bank systemically important financial institution, a decision that MetLife contested in the U.S. District Court for the District of Columbia. Judge Rosemary Collyer of the district court held that the FSOC had erred because, among other things, it violated its own Guidance by failing to assess the likelihood that MetLife would experience financial distress, and that it had also erred when it refused to consider the costs of the designation to MetLife. The FSOC appealed to the U.S. Court of Appeals for the D.C. Circuit.

On June 23, 2016, Constitutional Accountability Center filed a friend-of-the-court brief in support of the FSOC on behalf of current and former members of Congress, including the principal authors of Dodd-Frank. Our brief argues that the district court’s decision invalidating the FSOC’s designation of MetLife as systemically important is at odds with Dodd-Frank and undermines the regulatory scheme Congress put in place to help prevent another financial crisis. Contrary to Judge Collyer’s opinion, the appropriate question under Dodd-Frank is not whether MetLife is likely to experience financial distress; rather, it is whether there would be a significant impact on the broader economy if it were to experience such distress. Nothing in the FSOC Guidance is at odds with that statutory standard. Further, and also contrary to Judge Collyer’s opinion, nothing in Dodd-Frank requires the FSOC to consider the costs to the entity under review; indeed, consideration of costs would be essentially impossible given that it is not the FSOC, but the Fed, that determines what standards to apply to designated entities, and the FSOC does not know what standards the Fed will apply at the time it makes its designation. Finally, we also argue that the district court erred in substituting its own judgment for that of the FSOC given the highly deferential standard of review set out in Dodd-Frank. By doing so, the district court undermined not only the statutory scheme that Congress put in place in Dodd-Frank, but also the nation’s ability to prevent another financial crisis.

The D.C. Circuit Court heard oral argument on October 24, 2016.

On January 18, 2018, the parties jointly moved to dismiss the appeal, and on January 23, the court dismissed the appeal.