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Seven years ago, a federal judge ruled that the Financial Stability Oversight Council fumbled by not accounting for regulatory costs when it deemed MetLife “too big to fail” and placed the insurance giant under Federal Reserve oversight.

The MetLife decision was a massive win for industries that had chafed under post-financial crisis reforms allowing FSOC to impose bank-like regulations on individual insurance companies, asset managers and hedge funds that are deemed “systemically important financial institutions.” As Treasury Secretary Janet Yellen and top Biden regulators move to reassert those powers, which were dismantled by the Trump administration, Wall Street lobbyists are cracking open the playbook that got MetLife off the hook.

FSOC’s proposal cuts changes spearheaded by former Treasury Secretary Steven Mnuchin that require the Council to conduct a cost-benefit analysis before tagging any nonbank as systemically important. BlackRock and Fidelity Investments took aim at the shift in recent comment letters. So did the American Investment Council, which represents the private equity industry, the U.S. Chamber of Commerce and the Insurance Coalition.

The council’s contention that it doesn’t need to weigh the regulatory costs that will be borne by a potential SIFI “ignores the fundamental principles of administrative law underlying the district court’s decision,” American Property Casualty Insurance Association’s Matthew Vece and Stephen Broadie wrote.

But there’s a reason Biden regulators don’t think cost-benefit is necessary.

The relevant section of the 2010 Dodd-Frank law doesn’t specifically call for that analysis and, had the Trump administration followed through on an appeal of the MetLife decision, “I like to think that it would have been overturned,” Kathryn Judge, a professor and vice dean at Columbia University Law School, told your host.

“It’s very easy in the abstract to say — generally speaking — that we shouldn’t be creating rules, where the benefits don’t generally exceed the cost,” she said.

But “there’s a huge difference between that conceptual framework and imposing legal requirements [that], as a practical matter, really slow down and tend to tilt the regulatory process towards outcomes that under-regulate. Particularly when we’re talking about risk that inherently involves some degree of speculation,” Judge added.

In other words, it’s hard to say exactly how much financial agony a SIFI designation could prevent when you’re forecasting a crisis that hasn’t occurred. And, as Judge and 31 other academics wrote in a recent comment letter to FSOC, conducting a cost-benefit analysis would be “more likely to impede than promote appropriate oversight” in this context.

Yellen made a similar point when FSOC rolled out the proposal in April, according to the meeting minutes, arguing that some of the Trump-era changes create an “unrealistic timeline that could prevent the Council from acting to address an emerging risk to financial stability before it was too late.”

Still, the scrutiny and restrictions that would hit any non-bank financial institution that’s deemed systemically important would come at a cost. And given the degree to which the insurance, private equity, mutual fund and asset management industries are taking aim at the cost-benefit component of FSOC’s proposal, it’s also a sign of what’s to come if Biden administration regulators follow through.

“It would stand to reason that it would be subject to a new challenge,” said one insurance industry lobbyist. “It feels really obvious.”

IT’S MONDAY — Any other angles to the FSOC proposal that you’re pondering? Let us know. Send tips, gossip and suggestions to Sam at [email protected] and Zach at [email protected].

Monday … Federal Reserve Gov. Michelle Bowman will speak at 8:30 a.m. … Consumer credit data for June will be reported at 3 p.m. … Tuesday … Philadelphia Fed President Patrick Harker speaks at 8:15 a.m. … Ginnie Mae President Alanna McCargo will speak at a Bipartisan Policy Center event at 10 a.m. … Richmond Fed President Tom Barkin speaks at 8:30 a.m. … Wednesday … Peterson Institute for International Economics is holding an event on bank supervision at 9 a.m. … Thursday … The consumer price index for July is out at 8:30 am. … Friday … The producer price index for July is out at 8:30 a.m.

CPI incoming — Last week’s middle-of-the-road jobs report affirmed Federal Reserve Chair Jerome Powell’s recent assertion that there’s a path for the economy to avoid recession. Of course, Powell also made a point of saying that he “wouldn’t use the term ‘optimism’ about this year.”

Optimism will flicker if inflation accelerates. Right now, economists expect the Bureau of Labor Statistics to announce that prices climbed by 3.3 percent in July compared to last year. June’s readout was 3 percent.

That would be a problem for the White House as it moves to cast the economy as a winning issue for President Joe Biden and Democrats. As Zach and I wrote on Friday, the public isn’t giving the president much credit for economic policies even as many indicators show meaningful signs of improvement.

— Bloomberg’s Rich Miller: “The economy is getting a boost from Bidenomics and a bulging federal budget deficit, simultaneously fueling hopes the US will avoid a recession while fanning fears it will be stuck with too much debt and too-high inflation.”

Another inflationary threat — The WSJ’s Esther Fung: “Surging demands on transportation workers are fueling labor standoffs at companies critical to U.S. supply chains.”

Tick, tick, tick — Our Declan Harty reports that more than 75 House Democrats are urging SEC Chair Gary Gensler to push ahead with the agency’s landmark climate risk disclosure rule despite broad concerns from the GOP and corporate America. In a letter led by Reps. Sean Casten of Illinois, Juan Vargas of California and Kathy Castor of Florida, the group called on Gensler to finalize the rule “as quickly as possible” as worsening weather events around the world “have affirmed that climate change poses a significant financial risk” to companies.

The culture wars — Sally Goldenberg and Gary Fineout report that Florida Gov. Ron DeSantis is struggling to connect with major Republican donors after his high-profile spats with Disney and Bud Light. “DeSantis made a fatal error — his whole anti-Disney, anti-corporate stance is so foolish,” said Kathy Wylde, president and CEO of the Partnership for NYC — a trade organization that represents Wall Street executives. “I know a donor to him who sat him down, and told him what a mistake this was early on, and he didn’t care.”

The crypto industry says it needs the imprimatur of U.S. regulation to grow. But if you ask Intercontinental Exchange’s (ICE) Chief Development Officer Chris Edmonds, trading platforms that jump through the necessary hoops are still likely to lose out. Why? Even as safer options hit the market, traders are still gravitating toward unregulated entities.

That was ICE’s experience when it helped build a New York Department of Financial Services-approved platform in 2019, Edmonds wrote in a recent blog post. The “market did not then — and we believe evidence continues to show still does not - value the fully regulated, physically delivered crypto market.”

Policymakers need to “ask some very difficult questions of operators in the crypto space as to why current regulation doesn’t work. Because here was an example … where there was a fully regulated solution that wasn’t taken up,” Edmonds told your host. “People who are seeking ‘more clarity on regulation’: Ask them exactly what that means.”

Curveball — The WSJ’s Sam Goldfarb and Matt Grossman: “The yield on the benchmark 10-year U.S. Treasury note has surged close to its highest level in more than a decade, lifted by new bets that a strong economy could support years of higher interest rates.”

New York, New York — The NYT’s Ana Swanson: “The Senate majority leader helped deliver billions of dollars in federal funding for semiconductors. Now he’s pushing for his state to reap benefits.”

The bell tolls for meme — Bloomberg’s Bailey Lipschultz: “Dan Loeb is hardly the first Wall Street titan to lament how meme stock traders have made short selling a perilous endeavor. But that Loeb, who runs the hedge fund Third Point LLC, did so now is what’s interesting … Loeb, while seemingly untouched by those sudden market swings, made it clear in a letter this week to his clients that his days as a big gambler against individual stocks are over.”

Growing — Reuters’s Ahmed Elimam and Hadeel Al Sayegh: “Saudi Arabia’s Public Investment Fund on Sunday released its annual report for 2022, which said its assets under management (AUM) surpassed 2.23 trillion riyals ($594.43 billion).”

Rumble in the bumble — The Associated Press: “Elon Musk says his potential in-person fight with Mark Zuckerberg would be streamed on his social media site X, formerly known as Twitter.”