The US Treasury will appeal against a court ruling dismissing MetLife’s designation as a systematically important financial institution (SIFI).     

The life insurer won its challenge against the designation last month, and the Government decided to appeal after the court’s decision was made public.

Treasury Secretary Jacob Lew says he “strongly disagrees with the court’s 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 overturning the conclusions of experienced financial regulators, the court imposed new requirements that Congress never enacted, and contradicted key policy lessons from the financial crisis.”

District Court judge Rosemary Collyer says she dismissed the Financial Stability Oversight Council’s (FSOC) designation on two grounds.

“The FSOC made critical departures from two of the standards it adopted in its [SIFI] guidance, never explaining 14 such departures or even recognising them as such,” her judgement says. “That alone renders FSOC’s determination process fatally flawed.”

Secondly, the regulator “purposefully omitted” the cost implications for MetLife, which the insurer argued would amount to $US9.6 billion ($12.7 billion) in regulatory costs.

“Thus, the FSOC assumed the upside benefits of designation – even without specific standards from the Federal Reserve – but not the downside costs of its decision,” the judgement says.

Mr Lew says the judgement does not take into account how quickly financial services businesses can collapse.

“If the FSOC only responds to risks after they are likely to threaten financial stability, we will pave the way for the next crisis,” he said.

“Market disruptions or contagion can arise from the aggregate effects of direct and indirect exposures to a large, highly interconnected financial institution.”

Mr Lew also defended the FSOC’s decision not to consider the financial implications of SIFI designation.

“Congress chose not to require the FSOC to conduct a formal cost-benefit analysis of designations for good reasons.

“Such a requirement would impair the FSOC’s ability to address the risks of a future financial crisis that could severely damage the financial system and the US economy.”

American Council of Life Insurers CEO Dirk Kempthorne has praised the judge’s decision.

“The facts quite simply did not support MetLife being designated as a SIFI,” he said.

“Indeed, we don’t believe the facts support the conclusion that any life insurer presents a systemic risk to the nation’s economy.”

Mr Kempthorne has called for a “more sensible and transparent process” on SIFI decisions.

“The FSOC should also offer a clear ‘exit ramp’ to companies so they can understand the de-risking strategies they could use to be de-designated from SIFI oversight,” he said.