Banking Law Prof Blog

Comparing Canada and the U.S. During the Economic Crisis

The Southeast Association of Law Schools (SEALS) conference is this week and I'm presenting a paper on "Lessons from Canada:  Crisis-Proofing a National Financial System." 

Some key factors I compared include:

• Capital requirements for financial institutions
• Funding structure for banks - reliance on retail deposits
• Market concentration
• Real estate market issues
• Consumer financial protection
• Prudential regulation structures
• Mortgage lending policies and legal requirements
• Secondary mortgage market issues
• Tax policy, including deductibility or non-deductibility of mortgage interest
• Monetary policy, including interest rates
• Budget and trade balances

Quite an eye-opener!

(ag) July 29, 2010, in Economy, Financial Regulatory Reform

President Signs Financial Reform Bill

Today, President Obama signed the financial reform bill.  Now comes the task of figuring out what's in and what's out, how to implement what's there, how big a burden it will be, how much consumer protection it affords, and what was left out.  In other words, as with all new legislation, the lawyer's work is just beginning.

LInk:  http://www.msnbc.msn.com/id/38340258/ns/business-consumer_news/

(ag) July 21, 2010, in Financial Regulatory Reform, Congress

The Secondary Mortgage Market - Next Hot Topic for Reform

With the current financial reform legislation wrapped up, the secondary mortgage market is overdue for reform. 

Since mortgage loans, mortgage-backed securities, and derivatives were at the heart of the financial crisis, it is surprising that reforming the failed GSEs which control the lion's share of the secondary market appeared nowhere in the current legislation. 

Fannie Mae and Freddie Mac operated with implicit government guarantees, until their failure -- when government ownership became real and not just perceived.

The U.S. housing market cannot exist without a secondary market for mortgage loans.  Lenders need to sell mortgages to regain liquidity to make more mortgage loans.  Securitization of mortgage loans expands the available investors and spreads risk. 

But how to manage this secondary mortgage market?  Make it totally private?  Totally government?  Or something in between.  In between is what we had -- and it demonstrated some major flaws.  We need to take a close look at the secondary mortgage market and redesign for the future.

Scott Frame, Financial Economist and Policy Adviser, Federal Reserve Bank of Atlanta, recently presented a speech to the Bankers Club of Chicago, "Redefining the Scope of Government Intervention in Secondary Mortgage Markets,"  giving a brief overview of issues and alternatives.

Link:  http://www.frbatlanta.org/news/speeches/frame_052710.cfm

(ag) July 19, 2010, in Secondary Mortgage Market, Fannie Mae & Freddie Mac, Economy

Analyzing the Factors of Financial Recovery

 
The Dallas Federal Reserve Bank's July Economic Letter contains a thought-provoking article entitled "Recovering from the Housing and Financial Crisis," by John V. Duca and David Luttrell.  The authors examine four shocks and their effects on GDP: 

1. Home Construction
2. Housing's Wealth Effect
3. Credit Availability
4. Securities Market Swings

These four shocks led the U.S. into financial crisis and the pace of their recovery provides a guage to U.S. economic recovery as a whole.  Each of these factors shows improvement -- but each merits careful attention.

(ag) July 17. 2010, in Economy

Dual Banking and the Financial Reform Legislation

The Conference of State Bank Supervisors (CSBS) applauds the financial reform legislation for enhanced support of the dual banking system.  

• Although the OTS will be folded into the OCC, there will not be a single federal mega-regulator.
• State banks can still choose the Federal Reserve as their primary federal regulator.
• State banking, insurance, and securities regulators will be represented (nonvoting) on the council to address systemic risk.
• Federal preemption will not be such an easy shield for national banks.  State laws can only be preempted on a case-by-case basis and under the "Barnett" standard will apply to allow preemption of only those state laws that "prevent or significantly interfere with powers of a national bank."

Link to CSBS report:  http://www.csbs.org/regulatory/regbytes/Pages/July-16,2010.aspx

(ag) July 16, 2010, in Dual Banking, Financial Regulatory Reform, Federal Preemption

Goldman Sachs Pays Whopping Fine

Goldman Sachs has agreed to pay $550 million -- the largest SEC penalty against a Wall Street firm. 

 The SEC charged that Goldman misled investors in collateralized debt obligations backed by subprime mortgage loans.

Goldman admitted that it had "made a mistake." 

Link to story:  http://www.bloomberg.com/news/2010-07-15/goldman-sachs-to-pay-record-550-million-to-settle-sec-subprime-fraud-suit.html

(ag) July 15, 2010 in Securities Law, Subprime Lending

Financial Reform Bill Goes to the President

Today, the Senate passed the final version of financial reform legislation which the House had already approved.  The bill now goes to the President for signature.

Here's the Wall Street Journal story:  http://www.marketwatch.com/story/senate-defeats-filibuster-threat-on-bank-bill-2010-07-15

(ag) July 15, 2010, in Financial Regulatory Reform

I'm Back From Turkey!

Just returned from a research trip to Istanbul and Ankara studying the Turkish bank regulatory structure!