My previous blogposts (one, two, three, four, and five) introduced why conspiracy prosecutions should be used to reach wrongdoing by agents within an organization. The 2012 prosecution of Monsignor Lynn for twelve years of transferring predator priests from parish to parish at the command and for the benefit of the Archdiocese of Philadelphia was defeated by the intracorporate conspiracy doctrine. Moreover, this was not the first time that the Roman Catholic Church had used the doctrine to help its bureaucrats escape liability for suppressing sex abuse cases.
In 1997, employees of the Roman Catholic Church in Connecticut were alleged—very much like Lynn—to have covered up the sexual misconduct of a priest, enabling him to continue to abuse children entrusted to the Church’s care by virtue of his office. When sued for civil conspiracy by the victims, the employees’ defense was that they were acting in the best interest of the corporation.
The Connecticut court found that the test for whether an agent is acting within the scope of his duties “is not the wrongful nature of the conspirators’ action but whether the wrongful conduct was performed within the scope of the conspirators’ official duties.” If the wrongful conduct was performed within the scope of the conspirators’ official duties, the effect of applying the intracorporate conspiracy doctrine is to find that there was no conspiracy. Because covering up the priest’s sex abuse was in the best interest of the corporate organization, the court found that the employees were all acting on behalf of the corporation. The court never reached the issue of whether the employees’ actions rose to the level of a civil conspiracy. Under the intracorporate conspiracy doctrine, it was a tautology that no conspiracy could be possible.
This case is interesting not only because it documents the way that the intracorporate conspiracy doctrine protects enterprises from inquiry into conspiracies, but also because of the subsequent history of its allegations. The full extent of the Bridgeport Diocese’s wrongdoings—if current public knowledge is indeed complete—only came to light in December 2009, twelve years after the 1997 case. It took twelve years, the combined resources of four major newspapers, an act displaying public condemnation of the Roman Catholic Church by members of the state legislature, and finally a decision by the U.S. Supreme Court to release the documents that could have become the basis of the intracorporate conspiracy claim in 1997. There is still no conspiracy suit or any criminal charge against the Diocese. Additional details about the case are available in my article The Intracorporate Conspiracy Trap. The article will be published soon in the Cardozo Law Review, and it is available in draft form here.
Astonishingly, none of the extensive news coverage about the sexual abuse cases in Bridgeport over those additional twelve years has connected these facts to the original 1997 case defeated by application of the intracorporate conspiracy doctrine. If the intracorporate conspiracy doctrine had not provided immunity, the case might have revealed the Diocese’s pattern of wrongdoing long beforehand and in a much more efficient way.
My next blogpost reveals additional dangers from the spread of the intracorporate conspiracy doctrine: frustration with the intracorporate conspiracy doctrine has started to distort other areas of law.
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My first and second blogposts introduced why conspiracy prosecutions are particularly important for reaching the coordinated actions of individuals when the elements of wrong-doing may be delegated among members of the group.
So where are the prosecutions for corporate conspiracy??? The Racketeer Influenced and Corrupt Organizations Act of 1970 (“RICO”, 18 U.S.C.A. §§ 1961 et seq.), no longer applies to most business organizations and their employees. In fact, business organizations working together with outside agents can form new protected “enterprises.”
What’s going on here? In this area and many other parts of the law, we are witnessing the power of the intracorporate conspiracy doctrine. This doctrine provides immunity to an enterprise and its agents from conspiracy prosecution, based on the legal fiction that an enterprise and its agents are a single actor incapable of the meeting of two minds to form a conspiracy. According to the most recent American Law Reports survey, the doctrine “applies to corporations generally, including religious corporations and municipal corporations and other governmental bodies. The doctrine applies to all levels of corporate employees, including a corporation’s officers and directors and owners who are individuals.” Moreover, it now extends from antitrust throughout tort and criminal law.
What is the practical effect of this doctrine? The intracorporate conspiracy doctrine has distorted agency law and inappropriately handicaps the ability of tort and criminal law to regulate the behavior of organizations and their agents. Obedience to a principal (up to a point) should be rewarded in agency law. But the law should not immunize an agent who acts in the best interest of her employer to commit wrongdoing. Not only does the intracorporate conspiracy doctrine immunize such wrongdoing, but the more closely that an employer orders and supervises the employee’s illegal acts, the more the employer is protected from prosecution as well.
My next blogpost illustrates how the intracorporate conspiracy doctrine operates to defeat prosecutions for coordinated wrongdoing by agents within an organization. Let’s examine the case of Monsignor Lynn.
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The government’s response to the financial crisis was dramatic, enormous, and unprecedented, and nothing about it has been overseen by the courts. In our federal system, the courts are supposed to put the policies of presidents and congresses to the test of judicial review, to evaluate decisions by the executive to sanction individuals for wrongdoing, and to resolve disputes between private parties. But during and after the financial crisis, there has been almost none of that sort of judicial review of government, few sanctions on the private sector for conduct during the crisis, especially criminal ones, for the courts to scrutinize, and a private dispute process that, while increasingly active, has resulted in settlements, rather than trials or verdicts. This Article tells the story of the marginal role of courts in the financial crisis, evaluates the costs of that role, and provides suggestions to ensure a real, if not all-encompassing, judicial role during the next economic emergency.
Do give it a download, and let me know what you think. And thanks in advance for supporting us around here - we do like downloads!
It is a pleasure to be guest-blogging here at The Glom for the next two weeks. My name is Josephine Nelson, and I am an advisor for the Center for Entrepreneurial Studies at Stanford’s business school. Coming from a business school, I focus on practical applications at the intersection of corporate law and criminal law. I am interested in how legal rules affect ethical decisions within business organizations. Many thanks to Dave Zaring, Gordon Smith, and the other members of The Glom for allowing me to share some work that I have been doing. For easy reading, my posts will deliberately be short and cumulative.
In this blogpost, I raise the question of what is broken in our system of rules and enforcement that allows employees within business organizations to escape prosecution for ethical misconduct.
Public frustration with the ability of white-collar criminals to escape prosecution has been boiling over. Judge Rakoff of the S.D.N.Y. penned an unusual public op-ed in which he objected that “not a single high-level executive has been successfully prosecuted in connection with the recent financial crisis.” Professor Garett’s new book documents that, between 2001 and 2012, the U.S. Department of Justice (DOJ) failed to charge any individuals at all for crimes in sixty-five percent of the 255 cases it prosecuted.
Meanwhile, the typical debate over why white-collar criminals are treated so differently than other criminal suspects misses an important dimension to this problem. Yes, the law should provide more support for whistle-blowers. Yes, we should put more resources towards regulation. But also, white-collar defense counsel makes an excellent point that there were no convictions of bankers in the financial crisis for good reason: Prosecutors have been under public pressure to bring cases against executives, but those executives must have individually committed crimes that rise to the level of a triable case.
And why don’t the actions of executives at Bank of America, Citigroup, and J.P. Morgan meet the definition of triable crimes? Let’s look at Alayne Fleischmann’s experience at J.P. Morgan. Fleischmann is the so-called “$9 Billion Witness,” the woman whose testimony was so incriminating that J.P. Morgan paid one of the largest fines in U.S. history to keep her from talking. Fleischmann, a former quality-control officer, describes a process of intimidation to approve poor-quality loans within the bank that included an “edict against e-mails, the sabotaging of the diligence process,… bullying, [and] written warnings that were ignored.” At one point, the pressure from superiors became so ridiculous that a diligence officer caved to a sales executive to approve a batch of loans while shaking his head “no” even while saying yes.
None of those actions in the workplace sounds good, but are they triable crimes??? The selling of mislabeled securities is a crime, but notice how many steps a single person would have to take to reach that standard. Could a prosecutor prove that a single manager had mislabeled those securities, bundled them together, and resold them? Management at the bank delegated onto other people elements of what would have to be proven for a crime to have taken place. So, although cumulatively a crime took place, it may be true that no single executive at the bank committed a triable crime.
How should the incentives have been different? My next blogpost will suggest the return of a traditional solution to penalizing coordinated crimes: conspiracy prosecutions for the financial crisis.
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Yesterday, MetLife filed a complaint in the DDC protesting its designation as systemically important, which carries with it increased capital requirements and possibly burdensome oversight by the Fed. Most systemically important financial institutions (or SIFIs), are banks, used to burdesome capital requirements and oversight by the Fed. An insurance company is used to neither, hence the umbrage from MetLife.
The lawyer is Eugene Scalia, so the complaint is naturally well-written and thoughtful. I'm withholding judgment on the various statutory arguments posed, and on which it appears MetLife believes to have its best shot - they posit things like only financial companies can be designated as SIFIs, and financial companies must do 85% of their financial business in the US under the language of the statute, and MetLife, with its foreign insurance operations, does not do so. That sort of statutory flyspecking doesn't usually work in financial regulation, but maybe this time it's different.
But two of the firm's longer shots are worth considering. First, there is an effort to require the FSOC to do a cost benefit analysis in its SIFI designations, which it has steadfastly resisted so far. MetLife argues that the committee arbitrarily "did not address MetLife’s evidence of substantial market and company-specific costs, and did not even opine on whether designating MetLife was, on balance, for good or for ill." It is by no means clear that these considerations must be taken into account from the statute, but there are those who believe that some sort of weighing is something that every agency must do. This sort of argument worked when the DC Circuit had fewer Obama appointees on it.
MetLife is also arguing that it has been deprived of due process by the designation. It was "repeatedly was denied access to the full record on which FSOC’s action was based,"and anyway, "FSOC never identified the thresholds that result in SIFI designation or the manner in which the various statutory and regulatory factors regarding designation are balanced against one another in FSOC’s analysis," not least because of "the extraordinary design in the Dodd-Frank Act of FSOC itself, which identifies individual companies for designation, establishes the standards that govern the designation decision, and then sits in judgment of its own recommendations."
MetLife is right about the way that FSOC works, although the so-called "combination of functions" problems, whereby agencies both prosecute and adjudicate regulatory violations, has never been a big problem in administrative law. It especially has never been a problem in banking regulation, where the deal is that banks give up due process rights - they can be failed at any moment by the FDIC, based on an only somewhat clearly articulated CAMELS standard - in exchange for cheap, federal insured funding by small depositors, and the possibility of a bailout if things get really bad. MetLife doesn't get the cheap funding, but it does, as its SIFI designation suggests, get the benefit of being too big to fail, and therefore the likely recipient of a bailout. Should the fact that insurers only get a part of the benefit of the bargain of being a financial institution mean that they should get more process rights than banks? in some ways, that is what MetLife's constitutional claim posits.
The Times reports that S&P will soon be paying a billion dollar fine - or roughly one year's annual profits - to make a case that it commited fraud in relation to a financial institution go away. What should we make of this decision to settle?
- The government is using FIRREA to go after S&P, the obscure statute that combines harsh penalties with a civil burden of proof. To apply, FIRREA has to be about fraud "affecting a federally insured financial institution," and that has been conceptually challenging when applied to banks who have defrauded themselves by overstating the quality of various financial products to their counterparties and in their quarterly statements (you see? doesn't that sound like the opposite of defrauding yourself? It sounds like fraud affecting someone doing business with an FI?), but is more easily fit into a case against S&P's allegedly fraudulent ratings of banks.
- S&P hired Floyd Abrams, who has in the past successfully invoked the First Amendment to defend credit ratings agency rights to offer opinions about securities. I've never really understood why this works, as no one has a First Amendment right to defraud someone. A one billion dollar settlement doesn't suggest that the free speech at stake here is something that, you know, the Reporters' Committee for Freedom of the Press is really willing to get behind.
- This is something of a "first principles" observation, but fraud. Doesn't that sound like a bad word? Fraud! S&P is a fraud! Intentionally deceiving someone? Or omitting information you had a fiduciary duty to disclose? I don't think fraud means "fraud," anymore. I think it means something more like reckless wrongheadedness, at least in the financial markets.
- Why settle? The Times has a nice blurb on this:
Most Wall Street institutions, when faced with the threat of a Justice Department lawsuit, eventually cut a check rather than go to court: JPMorgan agreed to pay $13 billion to settle a crisis case;Bank of America more than $16 billion.
That settle-at-all-costs mentality stems from fears that a courtroom fight might antagonize the government and unnerve shareholders. It also spares a company the embarrassment of paying the same or even more after a trial, where an anti-Wall Street sentiment might sour the jury pool.
Financial institutions still manage to wring concessions from the government, often persuading prosecutors to water down a statement of facts that accompanies a settlement or provide immunity from other charges. And for all the leverage the government possesses, its approach has not translated into criminal charges against a single top Wall Street executive.
One dodgy thing that is being included in the currently debated spending bill is a substantive provision repealing a much-hated-by-banks law requiring them to do most of their derivatives trading though an entity that is not covered by deposit insurance. It's a rule that sounds pretty logical - why subsidize derivatives trading with deposit insurance, and isn't it risky to do otherwise? And why do we have to address this in a government budget bill anyway?
But it is also one of uncertain policy origins. Blanche Lincoln thought the swaps pushout rule would resonate with voters when she pushed it, and maybe community banks, which don't do a ton of this stuff, would like to make life hard for the big banks that do. Elizabeth Warren is incensed that it might be repealed, so maybe her constituents would be for it. But the Fed doesn't think it does bank safety much good.
Here's Dave Weigel on the politics, which look good for the banks (Warren's concerns aside, Democrats aren't whipping for the pushout rule reversal to be defeated). Here's DealBook on the sausage-making (the statutory language was drafted by Citigroup, which has always seemed like the most tone-deaf bank to me, rather than the most politically puissant).
My view is that financial regulation, which is just about protecting banks from themselves/macroeconomic shocks, with a soupcon of rent-seeking, is a mixture of easy rules and hard ones. Activity restrictions, like the Volcker Rule, or anti-branching laws, are easy. Capital rules, at least the current ones, are hard, and require a team of examiners to look over the daily positions of the banks, and so on. Admati's capital rule recommendation - banks must hold 4 times more capital than they do now, and there will be no risk-weighting - is an effort to make that easy again.
And organizational rules - create a bank holding company, make this sub do this thing, and that sub do that thing - are also easy.
Note that currently, it's the left and community banks that like the easy rules, and it's the right and the big banks that prefer to do things the hard, sophisticated way. That doesn't mean that complex rules are weak ones - I can't judge the onerousness of our tax laws, but some of them are super-complicated responses to super-sophisticated behavior, and maybe that makes more sense than giving up and charging everyone a VAT. But that's the way I see financial regulation right now.
And yes, I don't know why part of Dodd-Frank should be repealed as a condition of passing a spending bill. But I admire the ability of the lobbyists to get in there and at it.
One last thing - it's risky to be the bank named as the drafter of a bill taking away some of your regulator's regulatory powers. We'll have to see if Citi starts paying a extra-large number of fines in the next year, or if it really did do this with the tacit approval of its supervisors.
The Basel committee enforces through peer pressure, rather than through resort to a formal dispute settlement process, and the peer pressure is increasingly institutionalized through IMF-like reviews of the implementation of Basel commitments. The US just had its review, and Basel just released the report.
The big problem with the US embrace of global rules has come through its treatment of securitizations. Perhaps most notably:
a number of divergences were identified that for some US core banks lead to materially lower securitisation RWA [risk-weighted assets, the stuff against which you have to hold capital] outcomes than the Basel standard. These differences are mainly related to the prohibition on the use of ratings in the US rules. Pursuant to the Dodd-Frank Act, the US rules cannot include provisions related to the Basel framework’s Ratings-Based Approach (RBA) for securitisations, so the rules provide alternative treatments.
The US is not Basel compliant because its regulators are explicitly not permitted to use a tool - credit ratings - that Basel requires. It looks like the committee may fix this not by forcing credit ratings down America's throat, but by coming up with some equivalence standard, which tells you that when Congress speaks clearly, global regulatory harmonizers must listen. Another admission of note:
In carrying out this review, the Committee's assessment team held discussions with senior officials and technical staff of the Federal Reserve Board, the Office of the Comptroller of the Currency, and the Federal Deposit Insurance Corporation. The team also met with a select group of US banks.
This meet with regulated industry thing is one of the features of peer regulatory review, and it presumably gives industry yet another opportunity to make a case for its preferred version of regulation. But then, it is also a feature of international regulation, where the cross-border parties may sometimes also play roles as representatives of the domestically regulated.
This not at all silly list reveals the following:
- #1 William Dudley – President and CEO, Federal Reserve Bank of New York
Category: Government and Regulatory
- #1 Preet Bharara – US Attorney, Southern District of New York
Category: Government and Regulatory
- #3 Sophie Delaunay – Executive Director, Doctors Without Borders
Category: Non-Governmental Organization
- #4 Anonymous Whistleblower – Whistleblower, Securities and Exchange Commission
Category: Whistleblowing and Media
- #5 Glenn Murphy – CEO and Chairman, Gap Inc.
Category: Business Leadership
- #6 Eric Holder – Attorney General (outgoing), United States Government
Category: Government and Regulatory
- #7 José Ugaz – Chair, Transparency International
Category: Non-Governmental Organization
- #8 Pope Francis – Pope, Catholic Church
Category: Thought Leadership
- #9 Ma Jun – Director, Institute of Public and Environmental Affairs (IPE)
Category: Design and Sustainability
- #10 Larry Merlo – President and CEO, CVS Health
Category: Business Leadership
- #11 Carmen Segarra – Former Regulator, Federal Reserve Bank of New York
Category: Whistleblowers and Media
Dudley is the regulator who has called for bankers to act more ethically. I guess Bharara stands for the proposition that insider trading is the most unethical kind of business conduct, to the exclusion of all other such forms. Anonymous Whistleblower at 4! It proves you can make lots of money by being ethical! And Carmen Segarra, the Fed examiner, rounding out the top 11 - it suggests that business ethics are in question, finance would appear not to be the answer. Via.
Not to pile on, but there's the slightly unsettling trned of CEOs talking, or not, about their health. Surely material information a real investor would want to know about when deciding whether to buy or sell a stock in these days of the imperial CEO. But deeply unprivate. Anyway, here's Jamie Dimon's letter to the staff, in part, on the very good news that, after been stricken with throat cancer, he now appears to be free of it.
Subject: Sharing Some Good News
Dear Colleagues -
This past summer, I let you know that I had been diagnosed with throat cancer. Having concluded my full treatment regimen a few months ago, I wanted to give you an update on my health. This week I had the thorough round of tests and scans that are normally done three months following treatment, including a CAT scan and a PET scan. The good news is that the results came back completely clear, showing no evidence of cancer in my body. While the monitoring will continue for several years, the results are extremely positive and my prognosis remains excellent.
The stock is up 2% on the day. It will be interesting to see whether this email makes its way into a securities filing.
We write about the revolving door here, and elsewhere, and we're not as worried about it as some. So what to make of Goldman's hiring of Fed bank supervisors? The critical problem here is that one hire may have brought (or obtained) Fed information to his new job at Goldman. Since the bank supervisor relationship is supposed to be pretty confidential - why would a bank let you examine their books if you're going to talk about their positions to their competitors? - this is a big deal. And also because of the ethics rules that generally require you to stay off of matters you worked on in the government.
Here's what happened:
Rohit Bansal, the 29-year-old former New York Fed regulator, was one such hire. At the time he left the Fed, Mr. Bansal was the “central point of contact” for certain banks.
Seizing upon Mr. Bansal’s expertise, Goldman assigned him to the part of the investment bank that advises other financial institutions based in the United States. That assignment presented Mr. Bansal with an ethical quandary: He might have to advise some of the same banks he once regulated.
Before starting at Goldman, Mr. Bansal sought to clarify whether New York Fed policy prevented him from helping those banks, according to a person briefed on the matter. Initially, he presented Goldman with a notice from the New York Fed, which indicated that he might have to steer clear of certain assignments for one client, the midsize bank in New York. (While the person briefed on the matter provided the name of the bank, The Times decided to withhold the name because the bank was not aware of the leak at the time.)
The New York Fed’s guidance was apparently somewhat ambiguous. And Mr. Bansal later assured Goldman colleagues that he could work behind the scenes for that banking client, the person briefed on the matter said, so long as he did not interact with the bank’s employees.
Mr. Bansal’s lawyer, Sean Casey at Kobre & Kim, declined to comment.
And then Goldman found him using some data that had to come from the Fed. Some thoughts:
- Our former supervisor has himself a very fancy lawyer
- When enforcement officials go through the revolving door, there's little reason to believe they have been encouraged to go easy on the industry they plan to join. Why not keep that guy where he is, and hire away the tormentor? Bank supervision, which is more collaborative, could be different.
- But note that what former bureaucrats are selling is, partly, expertise - particularly, the expertise about what current bureaucrats will do. The question is whether there is anything wrong with paying for this sort of expertise.
Over at DealBook, I've got a take on MetLife's claim that it will be suing over its designation as a systemically important financial institution. A taste:
Congress gave the government 10 factors to take into account when making a too-big-to-fail designation. This sort of multiple-factor test all but requires regulators to balance values that have different degrees of quantifiability. Some can be counted, like the amount of leverage and off-balance sheet exposure. But others like “the nature, scope, size, scale, concentration, interconnectedness and mix of the activities of the company” have so many moving parts, some of them difficult to quantify, that expressing them mathematically may not be worth the effort. The government has also been given the leeway to consider “any other risk-related factors” that it deems appropriate, a standard that encourages judges to defer to regulators.
Do give it a look!
Eugene Scalia, of the family Scalia, has been the scourge of the SEC with his until recently effective insistence on a cost-benefit analysis to justify the imposition of new major rules on the capital markets. Now he's working for MetLife, the insurance company recently designated as a SIFI (which stands for "dangerously big bank-like institution"), and I guess the argument will be that the designation was arbitrary and capricious, and so inconsistent with the federal standards for administrative procedure, which probably, in Scalia's view, require a quantitative cost-benefit analysis done with meticulous care. Some thoughts:
- Courts often stay out of financial stability inquiries, but, then, they used to defer to the SEC's capital markets expertise, until Eugene Scalia came along. Perhaps Scalia can do something in this really nascent field of disputing SIFI designations. Still, uphill battle.
- If the FSOC somehow lost this case, it could always go global, and ask the Financial Stability Board to designate Met Life as a G-SIFI, which would give foreign regulators the right to persecute the firm's foreign operations, and maybe super-persecute it, if the American regulators could do nothing to control its SIFIness.
- The basic idea, by the way, which is hardly ludicrous, is that insurance companies aren't subject to bank runs, even if they are really big, and that only one of them failed, or was even at risk, during the last financial crisis. Since Met Life isn't in the business of writing unhedged credit default swaps (which is what AIG did, bolstered by its AAA rating and huge balance sheet), why should it have to hold bank-like levels of capital? There's more to that story, but I assume that is part of the story that MetLife will be telling.
HT: Matt Levine
Okay, the headline was made to draw in the reader. Non-banks will be allowed to securitize to their heart's content, and banks will likely basically continue to do the same. However, the Basel Committee orchestrated a meeting in Tianjin between central bankers (they do monetary policy) and bank supervisors (they do safety and soundness),and came up with, among other standards, an approach to the ability of banks to hold collateralized debt obligations, the sort of obligations that have been blamed for the financial crisis.
I will quote the report made from the meeting, though that's pretty dull and bureaucratic. However:
- the freedom of banks to hold derivatives is being set in these informal international meetings among bureaucrats, a fact always worth repeating
- the limits on bank holdings of securitized assets is being set through a negotiated, and global, process involving bank regulators and capital market regulators
- some people, the US very much not included, would see no reason to consult those who set monetary policy, or what the currency is worth, on the appropriate way to limit the power of banks to hold derivatives, or whether derivatives would fail to protect a bank in crisis times
- the supervisors and central bankers met in Tianjin, which means that some of them hopefully took the world's fastest train from Beijing's airport to Beijing's port city.
It's all very global and committee of regulators oriented. Anyway, here's the report on securitization assets held by banks:
The Committee also reviewed progress towards finalising revisions to the Basel framework's securitisation standard and agreed the remaining significant policy details that will be published by year-end. It also recognised work that is being conducted jointly by the Basel Committee and the International Organization of Securities Commissions (IOSCO) to review securitisation markets. The Committee looks forward to the development of criteria that could help identify - and assist the financial industry's development of - simple and transparent securitisation structures. In 2015, the Committee will consider how to incorporate the criteria, once finalised, into the securitisation capital framework.
Turkey's largest Islamic bank believes that it has been targeted for destruction by the Turkish government, and, given the way things seem to go in that country, the level of conspiratorial innuendo is high. But also high is the discretion of the government to act against banks and observers of same. Banks generally did well in the financial crisis of 2008, if not so well before then. Usually, supervision is done for safety and soundness. But here's Euromoney's quote of one of the principles of Turkish banking law:
The 'protection of reputation’ article of Turkey’s banking law, introduced after the country’s devastating banking crisis of 2001, states "no real or legal person shall intentionally damage the reputation, prestige or assets of a bank or disseminate inaccurate news either using any means of communication". Convicted violators of the code face up to three years in prison.
That seems like almost untrammeled regulatory discretion to me, joined with severe penalties. You could go after shorts, any sort of speaker, and probably the banks themselves, for soiling their own reputation. Via Matt Levine.