It’s Time to Re-examine America’s Financial Regulations

Maybe the shock of post-Lehman financial regulations has gone a little too far throughout the world. That is the thrust of certain recent developments in the USA. The American insurance giant MetLife has brought a case to a U.S. District Court, requesting reconsideration of regulations it perceives as too strict.

The issue at hand is the certification of megabanks as “systemically important financial institutions” by authorities — in particular, regulations that place banks under strict oversight. Specifically, these regulations establish increased bank capital requirements and restrict financial strategies pertaining to stock buyback and the like.

Securities companies and banks representing the U.S. have already become the target of these regulations. MetLife was targeted in December 2014, but is upset with the ruling.

The major American insurance company American International Group, which engaged in complex transactions at the time of the financial crisis, was bailed out with public funds. The authorities have stressed that MetLife is comparable to AIG as a major insurance company.

In contrast, MetLife has asserted that it did not engage in derivatives trading as much as AIG, and even in the event of bankruptcy, the likelihood of MetLife critically endangering the financial system is low.

Originally, SIFI regulations were focused on banks. The trend toward expanding targets of regulation as preventative measures against financial crises is a recent development. However, there is a strong case to be made against applying regulations meant for banks, which need to build enough trust to utilize deposits for loaning practices, on insurance companies that have no such obligation.

Not limited to this specific issue, it has been pointed out that when regulations on finance in general are too strict, it becomes difficult for needed capital to circulate throughout industry. There are even rules for postponed implementation for this very reason. I’d like to think of MetLife’s suit as an opportunity to carefully re-evaluate the contents of America’s financial regulations.

Many countries are trending toward tighter financial regulations. Japan, too, ought to investigate the influence this trend will exert on the economy, and use global finance conferences as a stage to present its findings.