Posts Tagged ‘Financial Regulation’

The New York Fed: A “Captured” Regulator

Posted by Luigi Zingales, University of Chicago Graduate School of Business, on Tuesday September 30, 2014 at 4:48 pm
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Editor’s Note: The following post comes to us from Luigi Zingales, Professor of Finance at the University of Chicago, and is based on an op-ed by Mr. Zingales that was published today in Il Sole 24 Ore, which can be found here.

The world of American finance has been invested by a new scandal. At its core, there is New York’s Federal Reserve; in other words, the institution that supervises America’s main banks. The scandal exploded because of the revelations emerged in a legal lawsuit about a layoff.

Carmen Segarra, a supervision lawyer, sued after being fired only seven months into her job. The New York Fed says it fired her due to poor performance. Segarra instead maintains that she was given the pink slip because she did not adapt to ‘Fed culture’—so permissive towards banks it regulates, almost to the point of collusion.

…continue reading: The New York Fed: A “Captured” Regulator

Regulators Re-Propose Uncleared Swap Margin, Capital and Segregation Rules

Posted by Annette L. Nazareth, Davis Polk & Wardwell LLP, on Sunday September 28, 2014 at 8:04 am
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Editor’s Note: Annette Nazareth is a partner in the Financial Institutions Group at Davis Polk & Wardwell LLP, and a former commissioner at the U.S. Securities and Exchange Commission. The following post is based on a Davis Polk client memorandum; the complete publication, including sidebars and appendix, is available here.

On September 3, 2014, U.S. banking regulators re-proposed margin, capital and segregation requirements applicable to swap entities [1] for uncleared swaps. [2] The new proposed rules modify significantly the regulators’ original 2011 proposal in light of the Basel Committee on Banking Supervision’s and the International Organization of Securities Commissions’ (“BCBS/IOSCO”) issuance of their 2013 final policy framework on margin requirements for uncleared derivatives and the comments received on the original proposal. The revised proposal:

…continue reading: Regulators Re-Propose Uncleared Swap Margin, Capital and Segregation Rules

Volcker Rule: Agencies Release New FAQ

Posted by Kobi Kastiel, Co-editor, HLS Forum on Corporate Governance and Financial Regulation, on Saturday September 27, 2014 at 6:22 am
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Editor’s Note: The following post comes to us from Sullivan & Cromwell LLP, and is based on a Sullivan & Cromwell publication by Eric M. Diamond, Joseph A. Hearn, and Ken Li. The complete publication, including appendix, is available here.

[On September 10, 2014], the Board of Governors of the Federal Reserve System (the “Federal Reserve”), the Office of the Comptroller of the Currency, the Federal Deposit Insurance Corporation, the Securities and Exchange Commission and the Commodity Futures Trading Commission (collectively, the “Agencies”) provided an addition to their existing list of Frequently Asked Questions (“FAQs”) addressing the implementation of section 13 of the Bank Holding Company Act of 1956, as amended, commonly known as the “Volcker Rule.”

…continue reading: Volcker Rule: Agencies Release New FAQ

Risk Governance: Banks Back to School

Posted by Kobi Kastiel, Co-editor, HLS Forum on Corporate Governance and Financial Regulation, on Sunday September 14, 2014 at 9:00 am
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Editor’s Note: The following post comes to us from Dan Ryan, Leader of the Financial Services Advisory Practice at PricewaterhouseCoopers LLP, and is based on a PwC publication.

On September 2, 2014, the Office of the Comptroller of the Currency (“OCC”) finalized its risk governance framework for large banks and thrifts (“Guidelines”) that was proposed in January 2014. [1] The Guidelines formalize the heightened risk management standards that the OCC has been communicating through the supervisory process for several years, but do so somewhat more flexibly than the January proposal (“proposal”) did. Although many firms have been working to enhance their risk management programs to meet the proposal and supervisory communications, most still have work to do in order to meet the Guidelines’ requirements.

The Guidelines maintain the proposal’s emphasis on risk governance at the bank level to ensure safety and soundness, and affords the OCC greater flexibility (prescribed under regulations) to take enforcement actions in response to a bank’s compliance failure. The responsibility to oversee risk management remains with the Board of Directors which retains its ultimate risk governance oversight role; however, the Guidelines clarify that the Board need not take on responsibility for day-to-day managerial duties as the proposal had suggested.

…continue reading: Risk Governance: Banks Back to School

Rolling Back the Repo Safe Harbors

Posted by Mark Roe, Harvard Law School, on Wednesday September 10, 2014 at 9:02 am
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Editor’s Note: Mark Roe is the David Berg Professor of Law at Harvard Law School, where he teaches bankruptcy and corporate law. This post is based on an article co-authored by Professor Roe, Ed Morrison, Professor of Law at Columbia Law School, and Bankruptcy Judge Christopher Sontchi for the District of Delaware. All three are members of the Advisory Committee on Derivatives, Financial Contracts and Safe Harbors, which is working with the ABI Commission to Study the Reform of Chapter 11. The article was presented at the Federal Reserve’s recent conference on Wholesale Funding Markets.

Ed Morrison, Judge Christopher Sontchi and I recently posted to SSRN our article recommending a major narrowing of the repo safe harbors, after presenting it at the Federal Reserve’s recent conference on Wholesale Funding Markets in which the Boston Fed president warned of the dangers in the repo market. Overall, we conclude that the Bankruptcy Code has aggressively and unwisely sought to regulate market liquidity and systemic risk, with the Code’s “safe harbors” from the normal bankruptcy machinery largely backfiring during the financial crisis. The sounder policy would be to limit the repo safe harbors to U.S. Treasury repos and repos of similarly liquid government securities.

…continue reading: Rolling Back the Repo Safe Harbors

The Hidden Costs and Underpinnings of Debt Market Liquidity

Posted by June Rhee, Co-editor, HLS Forum on Corporate Governance and Financial Regulation, on Tuesday August 26, 2014 at 9:08 am
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Editor’s Note: The following post comes to us from Amar Bhidé, Thomas Schmidheiny Professor at The Fletcher School.

Even as rabble rousers rail against financiers, the powers that be prize the breadth and liquidity of financial markets. Flash traders are investigated for unsettling stock markets and violators of securities laws receive jail sentences on par with violent criminals. The Federal Reserve has spent trillions with the avowed aim of pumping up the prices of traded securities, while expressing little more than the pious hope that this largesse might spill over into old-fashioned, illiquid loans.

…continue reading: The Hidden Costs and Underpinnings of Debt Market Liquidity

New ISDA 2014 Credit Derivatives Definitions

Posted by Yaron Nili, Co-editor, HLS Forum on Corporate Governance and Financial Regulation, on Sunday August 24, 2014 at 9:00 am
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Editor’s Note: The following post comes to us from Fabien Carruzzo, partner and head of the derivatives practice at Kramer Levin Naftalis & Frankel LLP, and is based on a Kramer Levin publication.

September 22, 2014 (the “Implementation Date”) will mark a new chapter in the credit derivatives market with the implementation of the new 2014 ISDA Credit Derivatives Definitions (the “New Definitions”). The New Definitions constitute a major reform of the terms governing credit derivatives products and address numerous issues identified this past decade with regard to credit and succession events and in the context of the Eurozone crisis. Most new credit derivatives trades entered into after the Implementation Date will follow the New Definitions, which are expected to ultimately fully replace the 2003 ISDA Credit Derivatives Definitions (the “Old Definitions”) in the market. Market participants will also have the opportunity to adopt the New Definitions for their portfolio of existing trades.

This post provides an overview of the most significant amendments made to the Old Definitions and describes how the market will migrate to the New Definitions.

…continue reading: New ISDA 2014 Credit Derivatives Definitions

New Credit Default Swap Terms to Be Implemented in September 2014

Posted by Yaron Nili, Co-editor, HLS Forum on Corporate Governance and Financial Regulation, on Saturday August 9, 2014 at 9:00 am
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Editor’s Note: The following post comes to us from Isabel K.R. Dische and Leigh R. Fraser, partners at Ropes & Gray LLP, and is based on a Ropes & Gray publication by Ms. Dische, Ms. Fraser, and Molly Moore.

Earlier this year, the International Swaps and Derivatives Association Inc. (ISDA) published the 2014 Credit Derivatives Definitions (the 2014 Definitions). The 2014 Definitions introduce a new government bail-in Credit Event trigger for credit default swap (CDS) contracts on financial Reference Entities in non-U.S. jurisdictions and also modify the typical terms of sovereign CDS contracts in light of the Greek debt crisis, by allowing a buyer of protection to deliver upon settlement the assets into which the Reference Obligation has converted even if such assets are not otherwise deliverable. Further, they create a concept of a Standard Reference Obligation, which means that most CDS contracts on a given Reference Entity would have the same Reference Obligation, thereby increasing the fungibility of such CDS contracts.

…continue reading: New Credit Default Swap Terms to Be Implemented in September 2014

Nationalize the Clearinghouses!

Posted by June Rhee, Co-editor, HLS Forum on Corporate Governance and Financial Regulation, on Friday August 8, 2014 at 9:00 am
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Editor’s Note: The following post comes to us from Stephen J. Lubben, Harvey Washington Wiley Chair in Corporate Governance & Business Ethic at Seton Hall University School of Law.

A clearinghouse reduces counterparty risks by acting as the hub for trades amongst the largest financial institutions. For this reason, Dodd-Frank’s seventh title, the heart of the law’s regulation of OTC derivatives, requires that most derivatives trade through clearinghouses.

The concentration of trades into a very small number of clearinghouses or CCPs has obvious risks. To maintain the vitality of clearinghouses, Congress thus enacted the eighth title of Dodd-Frank, which allows for the regulation of key “financial system utilities.” In plain English, a financial system utility is either a payment system—like FedWire or CHIPS—or a clearinghouse.

But given the vital place of clearinghouses in Dodd-Frank, it is perhaps surprising that Dodd-Frank makes no provision for the failure of a clearinghouse. Indeed, it is arguable that the United States is not in compliance with its commitment to the G-20 on this point.

…continue reading: Nationalize the Clearinghouses!

US Regulatory Outlook: The Beginning of the End

Posted by Yaron Nili, Co-editor, HLS Forum on Corporate Governance and Financial Regulation, on Monday August 4, 2014 at 9:23 am
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Editor’s Note: The following post comes to us from Dan Ryan, Leader of the Financial Services Advisory Practice at PricewaterhouseCoopers LLP, and is based on a PwC publication. The complete publication, including appendix and footnotes, is available here.

Regulatory delay is now the established norm, which continues to leave banks unsure about how to prepare for pending rulemakings and execute on strategic initiatives. With the “Too Big To Fail” (TBTF) debate about to hit the headlines again when the Government Accountability Office releases its long-awaited TBTF report, the rhetoric calling for the completion of these outstanding rules will once more sharpen.

This rhetoric should not be confused with reality, however. At about this time last summer, Treasury Secretary Lew stated that TBTF would be addressed by the end of 2013—a goal that resulted in heightened stress testing expectations and a vague final Volcker Rule in December, but little more. Since then, the slow progress has continued, with only two key rulemakings completed so far this year: the finalization of Enhanced Prudential Standards for large bank holding companies (BHCs) and a heightened supplementary leverage ratio for the eight largest BHCs (i.e., US G-SIBs).

…continue reading: US Regulatory Outlook: The Beginning of the End

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