How can a financial company become a threat to the entire economy? If its failure would be catastrophic for the economy and the financial system, it’s considered “too big to fail.” That concept was formalized as part of the Dodd-Frank financial legislation of 2010, and the government has special requirements for institutions considered too big to fail. Today, a federal court ruling was unsealed where a judge ruled that the government didn’t sufficiently prove that one such company, MetLife, really fit the requirements.

The official term for these institutions is a systemically important financial institution, or a SIFI, not to be confused with the cable channel SyFy. MetLife was found to be such an institution, even though it isn’t a bank. After insurer AIG came close to failure back in 2008 and received a $182 billion bailout (which AIG did pay back early) insurance companies joined the ranks of companies that the government could declare too big to fail.

According to the Washington Post, U.S. District Judge Rosemary M. Collyer ruled that MetLife doesn’t have to meet the requirements of a financial institution that’s too big to fail, which include tighter pro-consumer regulations and being required to keep more money on hand than a less important financial institution might.

Judge Collyer noted that the panel which decides which institutions are designated too big to fail, the Financial Stability Oversight Council, did not consider how the government’s stricter requirements for an insurance company that’s considered a SIFI would affect MetLife’s operations and finances. The panel declared that MetLife’s failure would be disastrous for the economy, she wrote, but they didn’t explain specifically how.

Treasury Secretary Jack Lew is deeply concerned about the ruling. “This decision leaves one of the largest and most highly interconnected financial companies in the world subject to even less oversight than before the financial crisis,” he said in a statement. While the Department of Justice plans to appeal this ruling, other companies could sue to be un-designated, and the process of designating a bank as too big to fail would become longer and more onerous, if not impossible.

Secretary Lew shared his opinion over Twitter. In other news, the Treasury Department has a Twitter account.

U.S. failed to show how MetLife is “too big to fail,” judge says [Washington Post]
Government’s too-big-to-fail authority slammed by judge [USA Today] (Warning: auto-play video)
MetLife CEO Steven Kandarian: The Man Who Beat Uncle Sam [Wall Street Journal]
MetLife Unsealed [Wall Street Journal] (A TL;DR version of the judge’s ruling)

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