The Basel Committee just put out some core principles with the un-earth-shaking but nonetheless important goal "to strengthen banks' risk data aggregation capabilities and internal risk reporting practices." Who helped them come up with the principles? You might begin to answer that question by looking at the comment process. Who wrote in once the committee completed a draft of the principles and sent it around? It turns out that Basel kept a list:
|British Bankers Association||39kb|
|Canadian Bankers Association||368kb|
|French Banking Federation||204kb|
|Independent Data Professionals Group||788kb|
|International Banking Federation||250kb|
|Japanese Bankers Association||74kb|
|Polish Financial Sepervision Authority||443kb|
Prefontaine is a Canadian professor, and JWG a beltway bandit/think tank. So, in other words, other than the Poles, this is a comment process dominated by banking industry groups. Basel has not in the past radically changed its rules during the comment process (though it changes them some), and I'm glad the committee is no longer operating entirely in secret. But it does show that the new openness in international financial regulation isn't being exploited by everyone.
Even though Europe is explicitly more willing to consider competitive injury than is the United States, and rather clearly a more active enforcer, there are still a couple of things you hear suggesting that really, we're moving towards one law of antitrust:
- The last time the EU reversed a merger approved in the US was Honeywell-GE in 2001.
- The EU and US talk all the time, through the ICN, through the Translatlantic Dialogue, you name it.
- They both use HH indexes.
I generally believe that international economic law harmonization is likely in many things, but antitrust, perhaps because of strong differences in the competition cultures of the two jurisdictions, is probably going to harmonize slower than most. The jurisdictions took very different views about Microsoft, the ICN has been sidetracked into technical training, and antitrust in general is becoming a little like accounting, where Europe has the world's standard, and the US has the idiosyncratic one. Unlike in acccounting, however, the pressure to change American exceptionalism is not likely to be as great.
Anyway, the UPS-TNT deal's undoing underscores this. America has blocked mergers - it blocked T-Mobile - AT&T - but this doesn't feel like something that would have suffered the same fate in the American context.
In 2013, we note the 100th year of federal banking law (Federal Reserve Act of 1913) and the 80th year of federal securities law (Securities Act of 1933). Senator Carter Glass of Virginia (D-VA) is widely known as the father of the Federal Reserve System, but it is not so widely know that he could arguably and rightly be called the father of the SEC.
In 1913, as Chair of the House Banking Committee, Rep. Glass worked to pass the Glass-Owen Federal Reserve Act, which created the Federal Reserve System. He was appointed Secretary of the Treasury by President Wilson and later left that post to become a US Senator from Virginia. In 1933, he worked to pass the Glass-Steagall Act, separating commercial from investment banking, essentially separating the banking and securities industries. Interestingly, earlier, Senator Glass has turned down an offer from President Franklin Roosevelt to become Secretary of the Treasury again.
In 1934, the Securities Exchange Act was moving through Congress, the Administration favored retaining the FTC (named as federal securities regulator in the 1933 Act) as regulator. But Senator Carter Glass preferred a new agency solely dedicated to securities regulation......
The banks moved today to put a large chunk of the blame for the financial crisis behind them with big dollar settlements. BofA settled Fannie suit against its Countrywide acquisition, alleging that the mortgages it sold to federal packager were done with fraudulent misrepresentations, thereby violating the False Claims Act. BofA press release here, story here. The topline number is $10 billion, but only $3.6 billion of that is a fine.
That's more than BofA will be paying in the global settlement of mortgage foreclosure chicancery also announced today, which will cost 14 banks (i.e., basically all the big ones) $8.5 billion in total. That is smaller than the settlement with state AGs for the same stuff, which was brokered by the Department of Justice. This settlement is with the banking regulators, and in both cases the relief is meant to go to homeowners, this time in cash, rather than through a cumbersome foreclosure relief process.
Some brief thoughts:
- In including every bank in the settlement, the costs of this relief will be pretty easy to pass along to consumers, it seems to me. No bank will be hurt disproportionately by the settlement, at least, unless the proportions are designed oddly.
- At the same time, including every bank leads to a big number which is not so big as to threaten the safety and soundness of the banking system - which is, after all, the woe is us last line of defense for banks, and one that came up in the Standard Chartered money laundering settlement.
- That is one of the reasons why it is very hard to interpret monetary settlements with financial intermediaries. Taken together, the settlements aren't bad for Fannie's bottom line, will result in thousands of dollars of relief for homeowners subject to foreclosure, and yet may not really bother the bankers at all.
- Semi-finally, a note of process, and one that shows the power of banking regulators. Unless I missed something, this settlement has come to fruition absent the filing of even a complaint. I don't even know what the theory of liability is, and OCC hasn't explained it to us. They talk of earlier enforcement orders related to mortgage abuses, but those orders partly deal with the future conduct of banks, not the past. And the part that does deal with the past refers to 12 U.S.C. 1818(b), which broadly prohibits banks from "unsafe and unsound" practices, including "management." (Here is the BofA enforcement order in that proceeding, e.g.) Again, this is not referred to in the current settlement notice for a case never filed. And even if it is the legal theory, it means that the regulators are relying on their ability to ensure that banks are solvent to police their relationships with consumers; we created the CFPB partly because we thought that they frequenty failed to square that circle.
- Interestingly, though, the federal regulators, even if they didn't get around to filing a case, did run the proposed settlement by stakeholders, consumer advocates, and others. That's often what you get in finance - not so much notice and comment as informal checking in.
To encourage corporate employees to come forward with complaints without fear of retribution by their managers, the SEC established rules that provide for whistleblowers to become eligible for certain financial rewards—between 10 and 30 percent of the total sanction—if the information they provide the SEC leads to successful monetary sanctions of more than $1 million. The Dodd-Frank Act also affords whistleblowers expanded legal protection, giving them the right to sue their employer for retaliating against them.
DealBook, on Treasury's plan to sell off its GM holdings:
Unlike the A.I.G. rescue, however, the government’s wind-down of its G.M. bailout is expected to lose money. The Treasury Department’s break-even pricepoint is generally estimated at about $53 a share, following the car maker’s I.P.O.
But the Treasury Department has long argued that the auto makers’ bailout was always expected to be unprofitable, offset by both the A.I.G. rescue and the bank recapitalization program.
Shares in G.M. were up 5.7 percent in early morning trading, at $26.93.
Appeals to Washington have been a part of takeover defense and merger thwarting for some time, but it used to be that antitrust was the principal vehicle for the complaint. As I've written, there's a lot of effort to turn national security into another component of that appeal, though it is hard to get CFIUS, the committee that reviews foreign acquisitions, to bite (it is much easier in Canada, which reviews foreign acquisitions of Canadian assets on a broader set of appropriateness metrics). There's now a full DC bar that can advise you on either side of this process, and they aren't afraid to be very clear about the services they are offering. We'll outsource the rest to the Blog of The Legal Times:
With a Chinese company moving closer to acquiring most of a bankrupt U.S. battery maker for $256.6 million, a Milwaukee-based auto parts manufacturer that bid for the firm has hired a team of Washington lobbyists from Wiley Rein as part of an effort to thwart the deal.
Johnson Controls Inc. has enlisted Wiley Rein public policy consultant Scott Weaver and former Representative Jim Slattery (D-Kan.), a partner who leads the firm's public policy practice, to educate members of Congress about how the sale of A123 Systems Inc. to Chinese auto parts maker Wanxiang America Inc. would impact U.S. Defense Department contracts, according to lobbying registration paperwork filed with Congress on Friday. Slattery said he's made contacts with congressional offices about the proposed transaction.
"There's concern" on Capitol Hill about the A123 deal, he said.
Although Navitas Systems LLC, based in Woodbridge, Ill., would receive A123's U.S. military contracts for $2.3 million, Republican Senators Chuck Grassley of Iowa and John Thune of South Dakota have been vocal about the potential national security implications related to Wanxiang purchasing a company that has technology used by the Defense Department, and is the recipient of about $250 million in government stimulus grants intended to bolster lithium-ion battery manufacturing.
"While we welcome foreign investment in the United States, we must ensure that national security and taxpayer interests are appropriately addressed," the senators wrote in a November 1 letter to U.S. Treasury Secretary Timothy Geithner.
The deal, which the U.S. Bankruptcy Court for the District of Delaware endorsed on December 11, must also secure the approval of the Committee on Foreign Investment in the United States, which Geithner heads.
Dave Vieau, Chief Executive Officer of A123, said in a written statement after the court's decision that his company is "confident" the Committee on Foreign Investment in the United States will back their plan to sell their assets.
"We believe an acquisition by Wanxiang will provide A123 with the financial support necessary to strengthen our competitive position in the global vehicle electrification, grid energy storage and other markets, and we look forward to completing the sale," Vieau said.
Wanxiang and A123 don't have lobbyists registered to advocate for them, according to congressional records.
But Johnson Controls spent $266,500 on federal lobbying during the first three quarters of this year. For its government affairs work, the company used its own staffers, as well as lobbyists from Dutko Worldwide.
- Anderson on Zywicki on Skeel on the financial crisis.
- This is a nice overview of private equity's transformation into a regulated group of financial products players, and a useful corrective to those who think that money doesn't want to be regulated, and so will increasingly opt for hedge funds and, well, PE.
- Barney Frank: "In no rational world will you have a separate Securities and Exchange Commission and a Commodity Futures Trading Commission. So that one I would have liked to change."
Elizabeth Trujillo, Jason Yackee, Sonia Rolland, and yours truly are the new leadership of the American Society of International Law's International Economic Law Group, Sonia and I in the vice-chair role. So hurrah and all that.
The historiography of this group is a bit different from that of the usual business law outfits. Corporate and securities regulation academics have been thinking about Delaware and the SEC for a very long time, and it seems to me that the new areas of research - executive compensation, what to do about private equity, and so on - fit within the Delaware and SEC framework. International economic law meant, until about 2000, one thing, and one thing only: the WTO (well, maybe also letters of credit, not that there's a lot of research on that). Then it meant two things that don't really overlap - the WTO and investment arbitration. Now there is a third group of financial regulation scholars in the mix, and the next emerging outfit will likely be one focusing on debt instruments. So what you see on the committees, and at the conferences, are trade specialists, investment specialists, and financial regulatory specialists, with sovereign debt to come. It isn't easy to knit those research interests together. But that is why we have the IELG.
So I'm excited to add VCASILIELG to my already impressive acronymic title roster (see also CCABAALSILC)
Anyway, the official announcement follows.
Elizabeth Trujillo from Suffolk University Law School and Jason Yackee from University of Wisconsin School of Law have been elected to be Co-Chairs of the International Economic Law Interest Group for ASIL. Jason and Elizabeth are stepping in after 2 years as being Co-Vice Chairs under the wonderful leadership of Sungjoon Cho and Claire Kelly. New Co-Vice-Chairs are David Zaring and Sonia Rolland. The election took place at the ASIL-IEcLIG Biennial conference held at George Washington Law School in Washington DC on Nov. 29-Dec. 1, 2012. The new leadership will be assuming their positions at the ASIL 2013 Annual Meeting in April. The ASIL-IEcLIG Biennial, in cooperation with George Washington University School of Law and the Federal Trade Commission, was on "Re-Conceptualizing International Economic Law: Bridging the Public/Private Divide." Keynote speakers included Professor Ralph Steinhardt from GW Law School, the Honorable Donald C. Pogue, Chief Judge United States Court of International Trade, and Amelia Porges from the Law Offices of Amelia Porges. There were over 100 registered participants from all over the world including the U.S., Europe, Latin America, New Zealand, and Asia.
European political leaders agreed to cede the power to supervise their most important banks to the European Central Bank - no small thing in a continent where banking and politics have long been conjoined. This is a pretty good overview. But the striking nature of the development demands a long view as well:
- As a matter of logic, there's no particularly good reason why the institution that sets monetary policy should be the institution that makes sure that banks are safe and sound. Why should a mission related to unemployment and interest rates make a bunch of regulators also good at cajoling a bank overweighted in Slovenian real estate, or developing country debt, or whatever, to diversify? And yet Europe has just combined these functions in the ECB, instead of simply creating a new bank supervisor, independent of the institution that sets monetary policy.
- In doing this, they have adopted an American model of bank supervision. Fed regulators will tell you time and again how useful it is that they have examiners in the banks they talk to when they talk about the economy. These regulators appear to have persuaded Europe that they are on to something, even though one might assume that the stronger interest in supervision lies in the ability of the Fed to fund itself through examination fees, thereby avoiding congressional appropriations oversight (it also raises plenty of revenue through bond sales, admittedly).
- Without wanting to be too dramatic about it, you can see how unionization advocates pin their hopes on financial integration. It did for Alexander Hamilton. It was a priority for ancient regime France. Finance is so integratable. And once finance is integrated within a particular polity, very frequently broader statebuilding follows. So this may indeed be a red letter day for European Unionists. Also, by adopting an American central banking plus supervision model, it may pave the way for broader harmonization to come.
It looks like the DC Circuit will say no, in a case of interest to those bemused by the massive number of deferred prosecution agreements signed by corporations in white collar crime/securities violation situations. Sometime those DPAs include corporate monitoring requirements. One enterprising reporter requested AIG's consent decree monitor reports after the firm went belly-up, hopeful that it would tell her something about the financial crisis:
AIG agreed to the final judgment in Washington federal district court in November 2004 with the SEC without admitting or denying the allegations, rooted in transactions between AIG and PNC Bank. The company agreed to give up $46.3 million in profit in the SEC civil action. DOJ entered a deferred prosecution agreement with AIG that same month in federal district court in Pennsylvania.
The terms of the deal with the SEC required AIG to hire an independent consultant to, among other things, keep tabs on the work of AIG's "transaction review committee." The committee was tasked with reviewing transactions that "involved heightened legal or regulatory risk because of the dangers of questionable accounting by counterparties," AIG lawyers said in court papers.
It would be interesting to know what that consultant thought about all of AIG's unhedged credit insurance activity, wouldn't it? But is it a judicial record? Even though the court never saw it? It sounds like the DC Circuit will not conclude that keeping the report in camera is akin to holding private trials. And more's the pity for those who want to know more about the collapse of AIG ... or the usefulness of corporate monitoring consent decrees.
- Here's a ton of guidance from the SEC and DOJ on Foreign Corrupt Practices investigations, the new boom area for DC practitioners, and principal headache of the multinational. JPMorgan is the latest firm to be ensnared; my sense is that financial firms have generally had a better run than most when it comes to avoiding prosecution. HT
- And here's ISS's new approach to 2013 votes. It isn't going to go entirely for labelling the pledging of stock to be a problematic company pay practice; it is also going to wait before recommending a vote against boards that ignore shareholder proposals that pass with a majority vote. But both look like they're in the offing. HT
Last week, the Financial Stability Board, a network of the G20's finance regulators, announced the 28 banks too big to fail, and the capital surcharges that the banks would have to add, given their bigness. It's the list you don't want to be on, and eight American banks are on it, including Bank of America, Bank of New York Mellon, Citigroup, Goldman Sachs, JPMorgan Chase, Morgan Stanley, State Street and Wells Fargo. Of these, Citi and JPMorganChase have to add the most capital, which might explain Jamie Dimon's hatred of international bank regulation. These banks have to hold more capital than ordinary banks - which, of course, might in theory be worth it to them, given the corresponding creditworthiness that comes from having an implicit government guarantee. But so much better, no, to have the guarantee and the same capital requirements as the credit union down the street, right?
Anyway, it shows how international supervision is continuing to evolve. It used to be that the networks came up with the rules, and left implementation to their members. Now one such network is making an individualized determination about a. how risky a bank is, and b. what actions it must take to mitigate its riskiness. Lawyers have a term for that sort of determination: it is called an "adjudication." Here is the text of the FSB's adjudication. Here's more from Reuters, and, from Bloomberg, a bit on how Deutsche Bank is going to meet its newly heightened obligations. And here's Andrew Haldane on the interest from regulators in shrinking banks via capital charges. The list is below.