(Bloomberg) -- A U.S. lawyer defending the government’s decision to designate MetLife Inc. a threat to the American economy if it were to falter was questioned sharply by a federal judge who was asked by the company to remove the label.

The nation’s biggest life insurance company is one of four companies tagged as a systemically important financial institution by the Financial Stability Oversight Council.

The designation means it may be subject to tougher capital and leverage requirements.

Read: MetLife introduces QLAC to 401(k) market

The agency on Wednesday asked U.S. District Judge Rosemary Collyer in Washington to throw out the insurer’s 2015 lawsuit, which contends the FSOC designation was arbitrary and unjustified.

The suit by New York-based MetLife is the biggest challenge yet to the regulatory council led by Treasury Secretary Jacob Lew since its creation as part of the 2010 Dodd-Frank law meant to reduce the chances of future financial crises.

Collyer asked Justice Department lawyer Eric Beckenhauer why the FSOC seemed to proceed from the proposition that in a fiscal crisis, MetLife would be at the brink of collapse.

‘Assuming the worst’

“That’s not risk analysis,” she said. “That’s assuming the worst of the worst of the worst.”

Beckenhauer responded that it’s the nature of financial crises to be unanticipated.

He said the insurance company was asking her to override the “considered judgment” of the heads of nine major financial regulators.

Collyer also queried MetLife lawyer Eugene Scalia about the low bar set for FSOC’s identification of potential threats to the financial system, noting that the threshold was merely that it could pose a threat, not that it did.

Scalia said his client isn’t a financial institution that should be subject to FSOC and that, even if it were, the methods used by the council to arrive at its conclusions violated federal administrative procedure law and the company’s right to due process.

‘Clouded in mystery’

The designation process, he said, was “clouded in mystery.”

MetLife has said the FSOC relied on “unsubstantiated speculation” and that the insurer poses no risk to the financial system. The three other nonbank financial companies designated by FSOC as systemically important are insurers American International Group Inc., Prudential Financial Inc. and General Electric Co.’s finance unit.

GE, which is exiting most of its lending businesses, has said it will ask the FSOC to remove the systemically important label from GE Capital.

MetLife is the only institution bearing the too-big-to-fail label to go to court over the determination.

The case is MetLife Inc. v. Financial Stability Oversight Council, 15-cv-00045, U.S. District Court, District of Columbia (Washington).

Instant Insights /

MetLife too-big-to-fail designation defended by government

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