Banking Law Prof Blog

Black Tuesday - Oct. 29, 2009

For an informative comparison to today's crisis, see this clip of PBS documentary discussing the 1929 Stock Market Crash on Black Tuesday, Oct. 29, 2009 . . . "The Wall Street economy disconnected from the real economy":

Link:  http://www.youtube.com/watch?v=RJpLMvgUXe8

(ag) Oct. 31, 2009, in Economy

An Opinion About Giving the Fed Too Much Power

In today's Forbes.com commentary, there's an interesting letter from Jagadeesh Gokhale, currently a Senior Fellow at the Cato Institute and formerly a Senior Economic Advisor at the Federal Reserve Bank of Cleveland.  Here's part of his message:

"In light of the recent asset price implosions and failures of large investment banks, should the Fed try to pre-emptively prick asset price bubbles? Furthermore, should the Fed be vested with the responsibility of regulating all financial institutions? Short answer: 'no' and 'no.'"

LInk: http://www.forbes.com/2009/10/28/fed-regulation-asset-bubbles-opinions-contributors-jagadeesh-gokhale.html

(ag) October 29, 2009, in Economy

Will the Bailouts Never End?

Bloomberg news reports that GMAC may get a third bailout.  They've already received two government bailouts totaling $13.5 billion, and are currently negotiating with the Treasury Department for a possible third capital injection of $2.8 billion to $5.6 billion.

Link to story:  http://www.bloomberg.com/apps/news?pid=20601087&sid=abvqTkQC.Ft4

(ag) Oct. 28, 2009, in Economy

Bernanke Talks About the Role of the Fed After the Crisis

Federal Reserve Board Chairman Ben Bernanke is already looking ahead to the end of the financial crisis and what the role of the Federal Reserve should be then.  He spoke at the Federal Reserve Bank of Boston's 54th Economic Conference, 

Chairman Bernanke called for

• Strengthening standards governing bank capital, liquidity, risk management, incentive compensation, and consumer protection;
• Improving supervision, with greater macroprudential focus, through enhanced consolidated supervision and development of new supervisory tools--including comprehensive horizontal reviews, off-site quantitative evaluations, and more extensive information gathering.
• Comprehensive financial reform by Congress, including strengthening consolidated supervision, setting up a mechanism (such as a systemic oversight council) to identify and monitor risks to financial stability, and creating a framework that allows for the safe unwinding of failing, systemically critical firms.

Link to speech:   http://www.federalreserve.gov/newsevents/speech/bernanke20091023a.htm

(ag) Oct. 26, 2009, in Financial Regulatory Reform

 

CFPA Bill Out of Committee - Preemption Provisions

The House Financial Services Committee concluded its markup of H.R. 3126 which will create a new Consumer Financial Protection Agency (CFPA).   The favorable committee vote was 39-29,  A summary of the preemption provisions of the bill follows:

Subtitle D – Preservation of State Law

National Bank / Federal Thrift Preemption
This legislation will reinstate the preemption standard in Barnett Bank of Marion County, N.A. v. Nelson, permitting the federal regulator to preempt state consumer financial protection laws only after a written finding that the state law “prevents or significantly interferes” with the exercise of powers granted to a federally regulated bank or thrift.  Preemption determinations must once again be made by notice and comment regulation or on a case-by-case basis, and with consultation  with CFPA to ensure that consumers will be protected under federal law if the state law is preempted.

Operating Subisidiaries
The bill reverses Watters v. Wachovia, in which the Supreme Court exempted operating subsidiaries of national banks and federal thrifts (which generally are state incorporated entities) from state consumer protection laws. H.R. 3126 will require state-chartered business entities to comply with state laws.

Enforcement by State Regulators
The bill codifies Cuomo v. Clearinghouse with explicit provision that state attorneys general and other appropriate state regulators are not prevented from enforcing state laws against national banks and federal thrifts. The bill also authorizes state attorneys general to enforce CFPA regulations, after consultation with the CFPA.

Link to full bill summary:  http://financialservices.house.gov/Key_Issues/Financial_Regulatory_Reform/FinancialRegulatoryReform/CFPA_Summary_of_HR_3126.pdf

LInk to CSBS summary:  http://www.csbs.org/Content/NavigationMenu/PublicRelations/CSBSExaminer/Examiner.htm

(ag) Oct. 24, 2009, in Congress, Consumer Protection, Federal Preemption.

Consumer Credit, Debt and Bankruptcy

Consumer Credit, Debt and Bankruptcy:  Comparative and International Perspectives

Edited by Johanna Niemi, Iain Ramsay and William C Whitford

The following is an abstract of an intriguing book of essays: 

"After a long period of prosperity and steady economic growth, the world's leading economies are now in crisis, and although there will be debate about its origins, the scale and seriousness of the crisis is in no doubt. There is also no doubt that excessive amounts of consumer credit, allied to a weak understanding of how globalised credit markets might react to a crisis, have played a significant part. This book, which is primarily about credit, debt and the trouble they have led to, is written by authors who have specialised in researching into over-indebtedness, that is, situations in which an individual's debt burden has become overwhelming.  For these authors the plight of individuals is a primary concern, but the wider issue is how credit is used and how it changes societies.  

The essays in this volume, addressing topics which are fundamental to our understanding of the current crisis, range widely across the whole sector of consumer finance, including mortgages, 'credit-binges', the regulation of consumer lending, insolvency, repayment plans, debt counselling and much more besides. The conclusions drawn from the book are equally wide-ranging, but above all the lesson learned from these essays is that the financialisation of contemporary life ensures that issues of the appropriate role of credit remain of critical importance in society."

(ag) Oct. 21, 2009, in Economy, Consumer Protection 

E-mails Indicate High Level Finagling in the BofA Acquisition of Merrill

Bloomberg reports today that e-mails show "interesting" discussions among Bank of America CEO Ken Lewis, Henry Paulson, Ben Bernanke, Timothy Geithner, and Lawrence Summers.

"Merrill, the world’s biggest broker, agreed to be acquired
after more than $50 billion of losses and writedowns tied to the
collapse of the subprime-mortgage market. By Jan. 8, a week
after the deal was completed and before details were disclosed,
federal officials changed their view of the purchase, according
to an e-mail from former Bank of America Treasurer Jeff Brown.
Fed and Office of the Comptroller of the Currency officials
“assign high probability the market will ‘attack us’ after
learning of the ‘government assistance’ to us,” Brown said in a
Jan. 8 e-mail to Price. Brown reminded the regulators that “1)
they forced us into this position and 2) they had provided every
assurance of a positive market response to any action from their
chairman to our chairman. They just got silent.”
The U.S. provided $20 billion in fresh capital and a $118
billion backstop on loans and mortgage-based securities to shore
up the purchase. Michelle Smith, a Fed spokeswoman, didn’t have
a comment."

Link to full story:  http://www.bloomberg.com/apps/news?pid=20601103&sid=aDv9AGUzXNRM

(ag) Oct. 20, 2009, in Economy

Bank Executive Bonuses Contrast with Unemployment Figures

Bank executives are criticized for excessive bonuses, especially when the profitability of their institutions comes more from government bailouts than from market performance.  Unemployment figures in the general economy provide a dismal contrast. 

The Obama administration is pointing out that the institutions giving excessive bonuses are the same ones that accepted government aid and now oppose financial regulatory reform to prevent a future financial crisis.

LInk to story:  http://www.washingtonpost.com/wp-dyn/content/article/2009/10/18/AR2009101802542.html?wpisrc=newsletter&wpisrc=newsletter&wpisrc=newsletter

(ag) Oct. 19, 2009, in Executive Compensation, Financial Regulatory Reform, Economy

Accounting Changes and the Future of Securitization

Here's a link to a thoughtful analysis of how FASB changes may improve the long-run health of the mortgage securitization market but slow economic recovery in the general economy in the short run.

LInk:  http://www.stroock.com/SiteFiles/Pub839.pdf

(ag) Oct. 16, 2009, in Economy

Stimulus Report Card Today

Today, the government will release reports on how effective the $787 Billion stimulus package has been.

Link to story:  http://www.washingtonpost.com/wp-dyn/content/article/2009/10/14/AR2009101403760.html?wpisrc=newsletter&wpisrc=newsletter&wpisrc=newsletter

(ag) Oct. 15, 2009, in Economy

Treasury Did Not Understand AIG Bonus Plan???

In an excuse comparable to "the dog ate my homework," Treasury Secretary Timothy Geithner explained that when he agreed to bail out AIG, he simply did not understand that AIG executives would receive and retain huge bonuses.

Link to story:  http://www.npr.org/templates/story/story.php?storyId=113784623

(ag) Oct. 14, 2009, in Executive Compensation 

U.S. Supreme Court Will Review Enron CEO's Conviction

Former Enron CEO Jeff Skilling will get another day in court.  The Supreme Court will hear his appeal from the 5th Circuit's affirmation of his convictions for conspiracy, securities fraud, insider trading, and lying to auditors.  At issue is the federal "honest services" fraud statute.  Even if he prevails, the likely result would be a new trial.

Link to AP story:  http://news.yahoo.com/s/ap/20091013/ap_on_bi_ge/us_supreme_court_skilling_appeal

(ag) Oct. 13, 2009, in Securities Law, Corporate Governance

Ohio Attorney General Sues Bank of America

Ohio Attorney General Richard Cordray has filed suit against Bank of America in NY District Court on behalf of pension funds in Ohio, Texas, Sweden, and the Netherlands.  The alleged basis for the lawsuit is BofA's failure to disclose bonuses paid to Merrill Lynch executives.  BofA's stock price fell dramatically after it acquired Merrill.  

The SEC and BofA have been fighting over this same issue.

LInk to Wall Street Journal story:  http://online.wsj.com/article/SB125414739616946369.html

(ag) Oct. 12, 2009, in Economy, Executive Compensation

CFPA Update

More than 80 law professors have signed onto the letter to Congress supporting the Obama administration proposal to create an independent Consumer Financial Protection Agency (CFPA).  House Financial Services Chairman Barney Frank placed the letter into the record of hearings last week.

Link to letter:  http://law.hofstra.edu/pdf/Media/consumer-law%209-28-09.pdf

Professor Elizabeth Warren says that reasons to support an independent CFPA can be summed up in five words:  "The credit market is broken."  Professor Warren makes it clear that the broken credit market contributed to the current financial crisis, is helping to perpetuate the crisis, and will cause future crises unless we fix it!

LInk:  http://www.youtube.com/watch?v=lYd08e5Cjvs

(ag) Oct. 9, 2009, in Consumer Protection, Financial Regulatory Reform

Villanova University Law School Symposium on Financial Regulatory Reform

I'm headed to Villanova University School of Law for the Symposium on Financial Regulatory Reform:

2009 Morgan, Lewis & Bockius Symposium on Securities Regulation
Financial Regulatory Reform:  Genesis, Progress, and Impact
Saturday, October 10, 2009

9:15-10:45: Panel 1
Elizabeth F. Brown, “Comparison of the Handling of the Financial Crisis in the United States, the United Kingdom, and Australia”
Eric J. Pan, “The Four Challenges of Financial Regulatory Reform”
Ann Graham, “Consumer Financial Protection:  Is a New Super-Agency the Best Way to Go?”
Joan MacLeod Heminway, “Reframing and Reforming the Securities and Exchange Commission:  Lessons from Literature on Change Leadership”
Moderator:  Jennifer O’Hare
  
10:45-11:00: Break

11:00-12:15: Panel 2
 Ronald J. Colombo, “Trust and Financial Regulation”
Anita K. Krug, “Moving Beyond the Clamor for 'Hedge Fund Regulation:' A Reconsideration of 'Client' under the Investment Advisers Act of 1940”
 Arthur Laby, “Reforming the Regulation of Broker-Dealers and Investment Advisers"
Moderator:  Jennifer O’Hare

12:15-1:30: Lunch

1:30-3:00: Panel 3
Brandon Becker & Jonathan Feigelson, “The Case For an Optional Federal Insurance Charter”
Jeffrey E. Thomas, “Insurance Perspectives on Federal Financial Regulatory Reform:  History, Framework, and Proposals” 
Marc Menchel, “The Changing Regulatory Landscape from the SRO Perspective”
Harvey J. Goldschmid, “The Financial Crisis: What Went Wrong and Where Do We Go From Here?”
 Moderator:  Jennifer O’Hare

(ag) Oct. 8, 2009, in Financial Regulatory Reform

W.VA. Attorney General Follows Up on the Cuomo Decision

Before the Supreme Court opinion in Cuomo v. Clearing House Association this spring, the West Virginia Attorney General had been enjoined from suing Capitol One Bank for alleged violations of law relating to its credit card operations.  In light of the Supreme Court ruling in Cuomo that state attorneys general are not prohibited from filing lawsuits against national banks or their operating subsidiaries for alleged violations of non-preempted state laws, the West Virginia Attorney has filed a motion to modify the earlier Order and seeks dissolution of the injunction.

See Capitol One Bank (USA), N.A. v. Darrell V. McGraw, Jr., Attorney General for the State of West Virginia, Civil Action No. 2:08-cv-00165, Motion filed 8/19/09.

(ag) Oct. 7, 2009, in Federal Preemption

CFPA - Will it be a toothless tiger?

Consumer groups are disappointed in the House Financial Services Committee's plans to weaken the proposed Consumer Financial Protection Agency in response to powerful industry wishes.  A recent article from the consumer perspective refers to the new version of CFPA as "watered down," "less powerful," and "declawed."

Link to story:  http://consumerist.com/5367103/consumer-financial-protection-agency-gets-watered-down

(ag) Sept. 7, 2008, in Consumer Protection, Financial regulatory reform

New President for Minneapolis Fed

The Federal Reserve Bank of Minneapolis has named a new President to replace Gary Stern, who recently retired.  Effective Oct. 8, the new President and CEO is Dr. Narayana Kocherlakota (the website even tells us how to pronouce it:  Nair-ah-yah-nah Koach-er-lah-ko-tah).   Dr. Kocherlakota is currently a professor of economics at the University of Minnesota.

Link to Announcement: http://www.minneapolisfed.org/news_events/rel/2009/093009.cfm

(ag) Sept. 7, 2009, in FRB, Economy

Merrill Lynch . . . It's Back!

The more things change, the more they don't -- even with a government bailout or maybe especially with a government bailout.

Reuters reports that Bank of America is "relaunching" Merrill Lynch's name and bull logo.

Of course, Bank of America is still searching for a CEO in the wake of bailout-related scandal (as in why should I tell B of A shareholders anything about bonuses for Merrill Lynch execs?) but one of their spokespeople "called the Merrill Lynch operations and the U.S. Trust business, the other main unit, two of the industry's 'crown jewels,' adding that she feels the industry is beginning to rebound."  Either that or she feels (correctly) that the American public is beginning to develop amnesia as usual.

LInk to story:  http://news.yahoo.com/s/nm/20091005/bs_nm/us_bankofamerica_merrill

(ag) Oct. 5, 2009, in Economy

The Minneapolis Fed - Great Source for TBTF Research Papers

The Federal Reserve Bank of Minneapolis, under the leadership of recently-retired President Gary Stern, has a long list of papers addressing the issue of "Too Big to Fail."

Evolution of Minneapolis Fed Thought:

• Macrostability Ratings: A Preliminary Proposal, Gary Stern and Ron Feldman, June 16, 2009.
  Addressing the Too Big to Fail Problem,
• Gary Stern Testimony before the Committee on Banking, Housing, and Urban Affairs, U.S. Senate, Washington D.C., May 6, 2009 [PDF]
• Addressing TBTF by Shrinking Financial Institutions: An Initial Assessment Gary Stern and Ron Feldman, April 17, 2009, revised May 20, 2009
• Better Late Than Never: Addressing Too-Big-To-Fail,
  Gary Stern Speech, Washington D.C., March 31, 2009
• Banking Policies and Too Big To Fail,
  Gary Stern Speech, Minneapolis, Minnesota, March 26, 2009
• Prospects for Macro- and Financial Policy,
  Gary Stern Speech, St. Paul, Minnesota, February 5, 2009
• Prospects for Macro- and Financial Policy,
  Gary Stern Speech, Cedar Rapids, Iowa, January 14, 2009
• Too Big to Fail: The Way Forward
  Gary Stern Speech, November 13, 2008
• Policy and the Economy in the Wake of the Shock,
  Gary Stern speech, October 21, 2008
• Limiting Spillovers Through Focused Supervision, The Region, September 2008
• Message from the President
  Introducing the 2007 Annual Report Essay
• Managing the Expanded Safety Net, 2007 Annual Report Essay
• Repercussions from the Financial Shock, Gary Stern speech,
  August 14, 2008
• Too Big To Fail: The Hazards of Bank Bailouts, Excerpt from book by Gary H. Stern and Ron Feldman, The Region, December 2003
• More Information on Too Big To Fail: The Hazards of Bank Bailouts is available from Brookings Institution Press.

Link to Minneapolis Federal Reserve:  http://www.minneapolisfed.org/publications_papers/studies/tbtf/index.cfm

(ag) Oct. 5, 2009, in Financial Regulatory Reform, Economy