Kai Ryssdal: We’ll hear more about this later in the broadcast, but it was one year ago this very day that President Obama signed the Dodd-Frank financial reform bill. Actually putting Dodd-Frank into effect, though, is stuck in a morass of furious lobbying and political maneuvering — today’s case in point being the insurance giant MetLife.
The company said today it’s looking to sell its banking division. And so perhaps avoid being Dodd-Franked.
Marketplace’s Jeff Horwich explains.
Jeff Horwich: To borrow a line from Steve Martin, it’s time to “get small.” The bigger you are, the more likely you are to get tagged under Dodd-Frank as a “Sytemically Important Financial Institution.” These are the kind of “too big to fail” companies that will get extra special attention from federal regulators. Banking consultant Bert Ely says MetLife would rather not be part of that club.
Bert Ely: So they’re trying to have as low a profile as possible. And one of the ways to do it is to dump any deposit-taking institution.
MetLife says it wants to sell off MetLife Bank to avoid being “governed by regulations written for banking institutions.” Code word: Dodd-Frank. And they’re not the first insurance company to do this: Allstate did; Ely says The Hartford just sold its bank in May — a bank it had bought mainly to qualify for federal bailout funds.
Ely: That’s one of the interesting ironies of it. Basically they’re getting out while they can.
Companies deemed “systemically important financial institutions” might have to take on less risk and hold more money in reserve. And Ely says insurance companies prefer their comfortable world of state regulation to Dodd-Frank.
But wait a minute: Wasn’t AIG an insurance company that turned out to be pretty “systemically important” when the crisis hit?
Andrew Winton: That’s where the definition of “systemically important” becomes an issue.
Andrew Winton is the chair of banking and finance at the University of Minnesota’s Carlson School of Management. He doubts insurers can get off the hook that easily.
Winton: They may think that if they spin off the banking units, they would no longer have that designation. But I don’t think it’s going to be clear-cut, and a lot of it’s going to end up being at the regulator’s discretion.
So until the Dodd-Frank regime is up and running, MetLife, Allstate and The Hartford are just hedging their bets — exactly what you’d expect from the insurance industry.
I’m Jeff Horwich for Marketplace.
We’re here to help you navigate this changed world and economy.
Our mission at Marketplace is to raise the economic intelligence of the country. It’s a tough task, but it’s never been more important.
In the past year, we’ve seen record unemployment, stimulus bills, and reddit users influencing the stock market. Marketplace helps you understand it all, will fact-based, approachable, and unbiased reporting.
Generous support from listeners and readers is what powers our nonprofit news—and your donation today will help provide this essential service. For just $5/month, you can sustain independent journalism that keeps you and thousands of others informed.