Posts Tagged ‘Treasury Department’

Nonbank SIFIs: No Solace for US Asset Managers

Posted by Noam Noked, co-editor, HLS Forum on Corporate Governance and Financial Regulation, on Thursday March 27, 2014 at 9:19 am
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Editor’s Note: The following post comes to us from Dan Ryan, Chairman of the Financial Services Regulatory Practice at PricewaterhouseCoopers LLP, and is based on a PwC publication.

Ever since the Treasury Department’s Office of Financial Research (“OFR”) released its report on Asset Management and Financial Stability in September 2013 (“OFR Report” or “Report”), the industry has vigorously opposed its central conclusion that the activities of the asset management industry as a whole make it systemically important and may pose a risk to US financial stability.

Several members of Congress have also voiced concern with the OFR Report’s findings, particularly during recent Congressional hearings, as have commissioners of the Securities and Exchange Commission (“SEC”). Further complicating matters, a senior official of the Office of the Comptroller of the Currency (“OCC”) recently expressed alarm about banks working with alternative asset managers or shadow banks on “weak” leveraged lending deals.

…continue reading: Nonbank SIFIs: No Solace for US Asset Managers

Corporate Finance Perspective on Large-Scale Asset Purchases

Posted by Noam Noked, co-editor, HLS Forum on Corporate Governance and Financial Regulation, on Friday December 28, 2012 at 8:06 am
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Editor’s Note: This post is based on the recent remarks of Jeremy C. Stein, a member of the Board of Governors of the Federal Reserve System, at the Third Boston University/Boston Fed Conference on Macro-Finance Linkages, which are available here.

Given that the conference theme is macro-finance linkages, I thought I would try to lay out a corporate finance perspective on large-scale asset purchases (LSAPs). I have found this perspective helpful in thinking both about the general efficacy of LSAPs going forward, and about the differential effects of buying Treasury securities as opposed to mortgage-backed securities (MBS). But before I get started, please note the usual disclaimer: The thoughts that follow are my own and do not necessarily reflect the views of other members of the Federal Open Market Committee (FOMC). I should also mention that these comments echo some that I made in a speech at Brookings last month. [1] As I noted in that speech, I support the Committee’s decision to purchase mortgage-backed securities (MBS) at a rate of $40 billion per month, in tandem with the ongoing maturity extension program in Treasury securities, and its plan to continue with asset purchases if the Committee does not observe a substantial improvement in the outlook for the labor market.

…continue reading: Corporate Finance Perspective on Large-Scale Asset Purchases

Treasury Issues FX Swap and FX Forward Exemption

Posted by Annette L. Nazareth, Davis Polk & Wardwell LLP, on Tuesday December 4, 2012 at 8:55 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. This post is based on a Davis Polk client memorandum.

On November 16, 2012, the Secretary of the Treasury issued a much awaited determination that foreign exchange (“FX”) swaps and FX forwards should not be regulated as swaps under the Commodity Exchange Act for most purposes, including registration, mandatory clearing and trade execution, and margin. As was the case in the proposed determination, FX derivatives other than FX swaps and forwards, such as FX options, currency swaps and non-deliverable forwards, are not covered by the exemption and would be regulated as swaps.

FX swaps and forwards will be subject to swap data repository trade reporting requirements applicable to swaps and to historical swaps. They will not be subject to “real-time” trade reporting requirements, however. Furthermore, the Commodity Futures Trading Commission’s enhanced anti-evasion authority will apply to FX swaps and forwards. In addition, swap dealers and major swap participants transacting in FX swaps and forwards must comply with “business conduct standards” contained in Section 4s(h) of the Commodity Exchange Act and implementing regulations. [1] These include the external business conduct rules, which impose on swap dealers and major swap participants various due diligence, fair dealing and disclosure obligations, certain heightened obligations when dealing with “special entities” and, in the case of swap dealers recommending swaps or swap trading strategies, suitability obligations. They also include the CFTC’s internal business conduct rules relating to diligent supervision. Finally, in discussing enhanced business conduct standards applicable to FX swaps and forwards, the final determination cites to the CFTC’s recently finalized rules on swap confirmation, portfolio reconciliation, portfolio compression and trading relationship documentation, which were adopted in part pursuant to Section 4s(h).

…continue reading: Treasury Issues FX Swap and FX Forward Exemption

Evaluating Large-Scale Asset Purchases

Posted by Noam Noked, co-editor, HLS Forum on Corporate Governance and Financial Regulation, on Monday October 29, 2012 at 9:12 am
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Editor’s Note: This post is based on the recent remarks of Jeremy C. Stein, a member of the Board of Governors of the Federal Reserve System, at the Brookings Institution; the full speech, including footnotes, is available here.

I’d like to describe the framework I have been using to think about monetary policy in the current environment, focusing primarily on the role of large-scale asset purchases (LSAPs).

There is a considerable diversity of views within the FOMC, and among economists more generally, about the use of LSAPs and other nonconventional policy tools. This diversity is both inevitable and healthy given the unprecedented circumstances in which we find ourselves. To be clear on where I stand, I support the Committee’s decision of last month—namely, to initiate purchases of mortgage-backed securities (MBS) at a rate of $40 billion per month, in tandem with the ongoing maturity extension program (MEP) in Treasury securities, and to plan to continue with asset purchases if the Committee does not observe a substantial improvement in the outlook for the labor market. Given where we are, and what we know, I firmly believe that this decision was the right one.

In my comments, I will only briefly review the case for taking action, as that ground has been well covered in a number of other places, most notably in Chairman Bernanke’s recent Jackson Hole speech. Instead, I will explore in more detail the factors that make decisions about LSAPs so challenging. The Chairman discussed these challenges in his recent speech, saying: “Estimates of the effects of nontraditional policies on economic activity and inflation are uncertain, and the use of nontraditional policies involves costs beyond those generally associated with more-standard policies. Consequently, the bar for the use of nontraditional policies is higher than for traditional policies.”

…continue reading: Evaluating Large-Scale Asset Purchases

May 2012 Dodd-Frank Progress Report

Posted by Noam Noked, co-editor, HLS Forum on Corporate Governance and Financial Regulation, on Wednesday May 16, 2012 at 9:11 am
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Editor’s Note: The following post comes to us from Margaret E. Tahyar and Gabriel D. Rosenberg of the Financial Institutions Group at Davis Polk & Wardwell LLP. This post discusses a Davis Polk report which is available here. A post about the previous progress report is available here. Other posts about the Dodd-Frank Act are available here.

This posting, the May 2012 Davis Polk Dodd-Frank Progress Report, is the fourteenth in a series of Davis Polk presentations that illustrate graphically the progress of the rulemaking work that has been done and is yet to occur under the Dodd-Frank Act. The Progress Report has been prepared using data from the Davis Polk Regulatory Tracker™, an online subscription service offered by Davis Polk to help market participants understand the Dodd-Frank Act and follow regulatory developments on a real-time basis.

In this report:

  • As of May 1, 2012, a total of 221 Dodd-Frank rulemaking requirement deadlines have passed. This is 55.5% of the 398 total rulemaking requirements, and 78.9% of the 280 rulemaking requirements with specified deadlines.
  • Of these 221 passed deadlines, 148 (67%) have been missed and 73 (33%) have been met with finalized rules. Regulators have not yet released proposals for 21 of the 148 missed rules.
  • Of the 398 total rulemaking requirements, 108 (27.1%) have been met with finalized rules and rules have been proposed that would meet 146 (36.7%) more. Rules have not yet been proposed to meet 144 (36.2%) rulemaking requirements.
  • This month, in a major Title VII rulemaking development, the CFTC and SEC approved final rules further defining the terms “swap dealer,” “security-based swap dealer,” “major swap participant,” “major security-based swap participant” and “eligible contract participant.” In addition, the FDIC and Treasury released a final rule that will govern the maximum obligation the FDIC may incur in liquidating a covered financial company.

Impact of the FATCA Proposed Regulations on Capital Markets Transactions

Posted by Noam Noked, co-editor, HLS Forum on Corporate Governance and Financial Regulation, on Tuesday March 27, 2012 at 9:10 am
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Editor’s Note: The following post comes to us from Leslie B. Samuels, partner at Cleary Gottlieb Steen & Hamilton LLP and former Assistant Secretary for Tax Policy at the U.S. Treasury Department, and is based on a Cleary Gottlieb alert memorandum.

I. Background

On February 8, 2012, the United States Department of the Treasury and Internal Revenue Service released proposed regulations implementing sections 1471 through 1474 of the Internal Revenue Code (commonly called “FATCA”). [1] The proposed regulations would impose reporting and withholding obligations on “foreign financial institutions” (or “FFIs”) that enter into an “FFI agreement.” Under the proposed regulations, starting in 2014, FFIs that do not enter into an FFI agreement would be subject to a 30% withholding tax on U.S.- source interest, dividends, and other types of passive income (“FDAP income”). The proposed regulations defer imposition of a withholding tax on gross proceeds from the sale of property producing U.S.-source dividends and interest until 2015. [2]

A more detailed discussion of the proposed regulations is included in our February 15, 2012, Alert Memo “Treasury and the IRS Release Proposed Regulations under FATCA and a Joint Statement with Other Countries Regarding an Intergovernmental Approach to FATCA Implementation” (available here). This summary highlights certain provisions of the proposed regulations that are relevant to capital markets transactions.

…continue reading: Impact of the FATCA Proposed Regulations on Capital Markets Transactions

Measuring Continuity of Interest in Reorganizations

Posted by James Morphy, Sullivan & Cromwell LLP, on Monday January 23, 2012 at 9:48 am
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Editor’s Note: James Morphy is a partner at Sullivan & Cromwell LLP specializing in mergers & acquisitions and corporate governance. This post is based on a Sullivan & Cromwell publication by Avi S. Alter, Ronald E. Creamer, Jr., and David C. Spitzer.

On December 16, 2011, the Internal Revenue Service (the “IRS”) and Treasury Department issued final and proposed regulations (“the Final Regulations” and “the Proposed Regulations,” respectively) that generally provide rules for the proper timing of the valuation of consideration offered in respect of a reorganization, for purposes of satisfying the “continuity of interest” requirement for tax-free reorganizations. The Final Regulations issue in finalized form rules previously described in temporary regulations, which allow in certain circumstances for the valuation of consideration on the date prior to the signing of a merger agreement, known as the “signing date” rule, with some additional clarification.

The Proposed Regulations would expand the signing date rule and would allow for the use of an average share price under certain circumstances. Specifically, under the Proposed Regulations, for purposes of determining whether the “continuity of interest” requirement is satisfied:

…continue reading: Measuring Continuity of Interest in Reorganizations

Proposed Rules Ease Compliance with Loss Trafficking Rules

Posted by James Morphy, Sullivan & Cromwell LLP, on Tuesday December 20, 2011 at 9:24 am
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Editor’s Note: James Morphy is a partner at Sullivan & Cromwell LLP specializing in mergers & acquisitions and corporate governance. This post is based on a Sullivan & Cromwell publication; the complete publication, including footnotes, is available here.

Under Section 382 of the Internal Revenue Code, a corporation’s use of net operating losses is limited if there is an “ownership change.” On November 22, 2011, the Department of Treasury issued a Notice of Proposed Rulemaking (the “Notice”) containing proposed regulations (the “Proposed Regulations”) intended to lessen the compliance burden on taxpayers determining whether an ownership change has occurred for these purposes. The Proposed Regulations are based upon and take into account comments received in respect of Notice 2010-49, which announced an IRS study on easing the compliance burden of tracking less-than-5% shareholders for these purposes.

Under the Proposed Regulations, taxpayers no longer have to separately track:

  • certain secondary transfers to a public owner;
  • certain small redemptions; and
  • certain shifts of ownership among small shareholders that indirectly hold shares of a corporation that has net operating losses or related tax attributes.

…continue reading: Proposed Rules Ease Compliance with Loss Trafficking Rules

Can the Treasury Exempt its Own Companies from Tax? The $45 Billion GM NOL Carryforward

Posted by Mark Ramseyer, Harvard Law School, on Tuesday July 5, 2011 at 10:15 am
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Editor’s Note: Mark Ramseyer is a Professor of Japanese Legal Studies at Harvard Law School.

Year after year, General Motors lost money – enormous sums of money. It designed cars. It built cars. But no one wanted to buy the cars it designed and built. Over time, it accumulated huge operating losses (“net operating losses,” or NOLs). The tax code let GM carry forward these NOLs into the future. It let the firm save them for that day in the future when it would once again sell cars that people wanted.

The day never came. Instead, in June 2009 GM (or “Old GM”) declared bankruptcy. It filed under Chapter 11 of the Bankruptcy Code and sold its assets to a new shell (New GM) in a transaction under Sec. 363 of the Code. Old GM’s shareholders were not part of New GM, and the firm’s creditors took stock: the US Treasury, the auto unions, and Canada swapped debt claims against Old GM for equity stakes in New GM. With 61 percent, the Treasury took the largest share among this group. Other Old GM creditors acquired a 10 percent stake in New GM as well. In the fall of 2010, Treasury re-sold a large amount of its New GM shares to the public, and cut its share to 26%.

…continue reading: Can the Treasury Exempt its Own Companies from Tax? The $45 Billion GM NOL Carryforward

A Plan to Tax the Foreign Income of U.S. Companies

Posted by Robert C. Pozen, Harvard Business School, on Monday June 27, 2011 at 9:56 am
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Editor’s Note: Robert Pozen is a senior lecturer at Harvard Business School and a senior fellow at the Brookings Institution. This post is based on an op-ed that appeared today in Bloomberg.

The current system for taxing foreign source income of U.S. corporations makes no sense. In theory, income earned by controlled foreign subsidiaries of American companies is taxed at the U.S. corporate rate of 35 percent; in practice, the Treasury receives no taxes on that income as long as it is held overseas. U.S. corporations now have overseas cash holdings of almost $2 trillion, which they are encouraged to deploy by acquiring companies and building facilities outside the U.S.

As an alternative, business lobbyists have advocated a so-called territorial system under which foreign source income would be taxed only in the country where it is earned. These lobbyists correctly argue that almost all advanced industrial countries now follow this system, though many don’t allow tax havens to take advantage of it.

This alternative is based on the premise that foreign source income is being taxed once somewhere, at a reasonable rate by a credible tax-enforcing government such as Germany. But this premise doesn’t apply to tax havens, like the Cayman Islands, where the tax rate is minimal, or a reasonable official rate isn’t enforced.

…continue reading: A Plan to Tax the Foreign Income of U.S. Companies

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