I testified yesterday before the House Financial Services Committee on the increasingly internationalized subject of insurance capital requirements, about which Congress and the more modestly sized firms in the insurance industry, have some concerns. If that's the sort of thing that interests you, you can download the testimony here.
Creating a continent wide deposit insurance program is interesting because of its American antecedent. The FDIC is one of two ways that America's entirely state-regulated banking system became, in essence, entirely federalized (the other one emerged through the Fed's oversight of bank holding companies). Once you have an insurer on the hook for making your depositors whole if you disappear, you have an institution that is going to want to inspect your books and interview your executives. And the EU commissioner who proposed it is British, one of the countries least enamored of the emerging EU agencies who are taking over from local banking regulators. It is quite the rejection of federalism.
Not of interest to all of our readers, but I'm hosting a works in progress workshop at Wharton at the end of January. If you've got something on international economic law, I hope you'll consider submitting it.
The ASIL International Economic Law Interest Group will hold a works-in-progress workshop on Friday, January 29, in Philadelphia, at the Wharton School. If you are interested in presenting a paper at the workshop, please submit an abstract by the end of the day on November 31st, 2015 to email@example.com. Please place “IECLIG Works in Progress submission”
in the subject line of your submission. Abstracts can range from a paragraph in length to a page, and should include the author's name and institutional affiliation. Papers should relate to the study of international economic law, broadly construed, be it related to private ordering, trade, investment, finance, or any of the other subjects that constrain the way that business is done across borders. The workshop is designed to offer a resource for those who cannot attend our December Heidelberg workshop done in conjunction with ESIL, to help scholars prepare for the February publication cycle, and to continue to broaden and deepen the interest group's intellectual community.
Papers selected for presentation will need to be submitted on January 15th; they will be circulated to the attendees of the workshop. Attendees will accordingly be able to comment on all of the papers during the workshop, and may also be given responsibility to lead the discussion of one of them in particular. One need not present a paper or comment on a paper to participate. As is the norm for workshops sponsored by ASIL interest groups, participants will need to cover their own travel expenses. Please do not hesitate to contact us should you have any questions about the workshop or paper submissions.
The FIFA case by the US is interesting because:
- It is a RICO case - so the government's using a statute designed to go after the mob to clean up an international organization.
- It is the definition of the extraterritorial application of American laws. To be sure, FIFA has availed itself of the American market, but only one American has been indicted in this case, and he looks like a minor player. It's not clear how much time the defendants (they're all from this hemisphere) spend in America. They are being indicted not because of what they have done to American victims, but rather how they have enriched themselves at the expense of FIFA, which has a relationship with America. Absent diplomatic immunity issues, the same sort of theory could be used to go after officials in a wide array of international organizations.
- Nonetheless, it looks like a typical white collar investigation. They've got an informant - Chuck Blazer - and now they've used him to go after a bunch of functionaries he knew. Surely they will try to get these defendants to turn on Sepp Blatter, the head of FIFA, and those close to him.
- For that reason, I could also see a deal done. If Blatter drops his re-election bid, this investigation could stop with some promised reforms and a few convictions.
- It looks like no government officials were bribed - this is not an FCPA case. It would be surprising, but I guess sometimes RICO alone is enough. The underlying counts are wire fraud - including the controversially expansive honest services wire fraud - and money laundering.
- Here's a somewhat related paper by Christina Parajon Skinner on disciplining international actors through RICO. Her case study is Donziger/Ecuador: Download Skinner on rico and io ethics
Here is an announcement that may interest some of our readers:
The Rutgers Center for Corporate Law and Governance, The University of Washington School of Law, and the Business and Human Rights Journal (Cambridge University Press) announce the first Business and Human Rights Junior Scholars Conference, to be held September 18, 2015 at the Rutgers School of Law – Newark in Newark, New Jersey, just outside of New York City. The Conference will pair approximately ten junior scholars writing at the intersection of business and human rights issues with senior scholars in the field. Junior scholars will have an opportunity to present their papers and receive feedback from senior scholars. Upon request, participants’ papers may be considered for publication in the Business and Human Rights Journal (BHRJ), published by Cambridge University Press.
Invited senior scholars include Anita Ramasastry, Nien-he Hsieh, George Brenkert, Tom Donaldson, Denis Arnold, Pat Werhane, and James Gathii. All junior scholars will be tenure-track professors who are either untenured or have been tenured in the past three years. The Conference is interdisciplinary; scholars from all disciplines are invited to apply, including law, business, human rights, and global affairs. The papers must be unpublished at the time of presentation.
To apply, please submit an abstract of no more than 250 words to firstname.lastname@example.org and email@example.com with the subject line Business & Human Rights Conference Proposal. Please include your name, affiliation, contact information, and curriculum vitae.
The deadline for submission is June 15, 2015. Scholars whose submissions are selected for the symposium will be notified no later than July 15, 2015. We encourage early submissions, as selections will be made on a rolling basis.
About the BHRJ
The BHRJ provides an authoritative platform for scholarly debate on all issues concerning the intersection of business and human rights in an open, critical and interdisciplinary manner. It seeks to advance the academic discussion on business and human rights as well as promote concern for human rights in business practice.
BHRJ strives for the broadest possible scope, authorship and readership. Its scope encompasses interface of any type of business enterprise with human rights, environmental rights, labour rights and the collective rights of vulnerable groups. The Editors welcome theoretical, empirical and policy / reform-oriented perspectives and encourage submissions from academics and practitioners in all global regions and all relevant disciplines.
A dialogue beyond academia is fostered as peer-reviewed articles are published alongside shorter ‘Developments in the Field’ items that include policy, legal and regulatory developments, as well as case studies and insight pieces.
I'm co-organizing a conference in Heidelberg; it's perhaps not something that all of the Glom's readers work on, but for those that do, we'd love to get your proposals:
On 11-12 December 2015, the International Economic Law Interest Groups of the American and European Societies of International Law, together with the Max Planck Institute for Comparative Public Law and International Law, will hold a joint works-in-progress workshop in Heidelberg, Germany. The overarching theme of the workshop is "The Future of Transatlantic Economic Governance in the Age of the BRICS." The deadline for paper proposals is 30 June 2015.
Proposals are encouraged across all areas of international economic law (trade, investment, financial regulation, monetary law, cross-border regulation of MNCs, law and development, etc.) For full details, please consult the Call for Papers in the documents section of the ASIL Interest Group's website:
We look forward to receiving your proposals! The Organizers
I've seen hard lobbying before, but this literal love letter from the Chamber of Commerce to the Trans-Pacific Partnership is pretty next level. The big finish:
I love your trade promotion authority as if she were my own family. I’m ready to adopt her today if that would fast-track me to your heart. I can’t wait to call you my own and make sweet sweet economic progress with you.
Please be mine. I will be yours.
The American Business Community
Over at Opinio Juris, the international law blog, they are marking their tenth anniversary with some ruminations about blogging and the blogosphere. See here, here, here, and here, and others thereabouts. Do go celebrate with them, contemplate law blogs more generally, and observe that they don't look one bit older than they did when they began their epic blogojourney. Congratulations, Opinio Juris!
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.
In the American Journal of International Law, Dick Stewart has an excellent piece on Remedying Disregard In Global Regulatory Governance: Accountability, Participation, and Responsiveness. I've got a commentary on it over at AJIL Unbound. A taste:
It may also be the case that as these bodies weave increasingly elaborate cross-border regulatory webs, they have no choice but to resort to something that looks quite law-like. In financial regulation, I view global administration as a sort of administration that has increasingly adopted stable bedrock principles that would be familiar to any international economic lawyer; indeed, given the importance of the cross-border work done to oversee financial institutions, it would be surprising if a measure of consistently applied rules, reason-giving, and transparency were not adopted. The banks being supervised would certainly find it arbitrary if done differently.
Do give the rest a look.
I've been on a bit of an international and administrative law kick these days, but as always, the case study is financial regulation. If you're interested in Sovereignty Mismatch And The New Administrative Law, available from the Washington University Law Review and here, you know what to do. Here's the abstract:
In the United States, making international policymaking work with domestic administrative law poses one of the thorniest of modern legal problems — the problem of sovereignty mismatch. Purely domestic regulation, which is a bureaucratic exercise of sovereignty, cannot solve the most challenging issues that regulators now face, and so agencies have started cooperating with their foreign counterparts, which is a negotiated form of sovereignty. But the way they cooperate threatens to undermine all of the values that domestic administrative law, especially its American variant, stands for. International and domestic regulation differ in almost every important way: procedural requirements, substantive remits, method of legitimation, and even in basic policy goals. Even worse, the delegation of power away from the United States is something that our constitutional, international, and administrative law traditions all look upon with great suspicion. The resulting effort to merge international and domestic regulatory styles has been uneven at best. As the globalization of policymaking is the likely future of environmental, business conduct, and consumer protection regulation — and the new paradigm-setting present of financial regulation — the sovereignty mismatch problem must be addressed; this Article shows how Congress can do so.
Comments and concerns welcome.
I want to draw your attention to this, now out in the Cornell Law Review. As regular readers know, I do a great deal of research on the international regulatory networks that increasingly set the standards for financial and securities regulation. This paper is an effort to connect the shaky legitimacy of that sensible impulse to a stronger body of doctrine, and so it touches more on foreign relations and administrative law than on pure financial regulation - and it is co-authored with a foreign relations and international law expert, Jean Galbraith. You should download it. The abstract:
The United States increasingly relies on “soft law” and, in particular, on cooperation with foreign regulators to make domestic policy. The implementation of soft law at home is typically understood to depend on administrative law, as it is American agencies that implement the deals they conclude with their foreign counterparts. But that understanding has led courts and scholars to raise questions about whether soft law made abroad can possibly meet the doctrinal requirements of the domestic discipline. This Article proposes a new doctrinal understanding of soft law implementation. It argues that, properly understood, soft law implementation lies at the intersection of foreign relations law and administrative law. In light of the strong powers accorded to the executive under foreign relations law, this new understanding will strengthen the legitimacy and legality of soft law implementation and make it less subject to judicial challenge. Understanding that soft law is foreign relations law will further the domestic implementation of informal international agreements in areas as different as conflict diamonds, international financial regulation, and climate change.
Please don't hesitate to send along your comments, concerns, etc.....
I took a look at a panel at the American Society of International Law and wrote up some thoughts in an ASIL Cable. A taste:
The [UN Guiding] Principles [on Business and Human Rights] are an achievement and an agenda setter, but the text – that “states must protect against human rights abuse within their territory and/or jurisdiction by third parties, including business enterprises,” and that “business enterprises should respect human rights” – is hardly specific. And indeed, if a theme was running through the views of the panelists, it was that the guiding principles achieved progress as part of a palette of incentives. These could induce businesses to think about, say, resettlement practices where large public works and mineral extraction projects were being pursued, worker and other protections could be built into supply contracts to ensure that the groups most affected by large investments should be able to profit from those investments.
Do give it a look.
By now, the risk that a distressed European nation such as Greece might leave the Eurozone and thereby spark global economic calamity is well known. Regular readers of this blog may even privately relish the prominence of the issue. Not since the days of the gold standard has international monetary policy come so close to being a socially acceptable topic of dinner conversation.
As I noted in my first post, observers rightly perceive the Eurozone sovereign debt crisis to be driven by political and economic forces. But many consequences of a euro breakup would be determined by law, including sources of American (specifically New York) private law.
This is a complex issue. I try to address it more fully in a new article, "Boilerplate Shock," which I've just posted on SSRN.
In brief, and to continue picking on Greece, one key question in the event of a euro breakup would be: would a court recognize an attempt by Greece to convert its euro-denominated debt into its new currency, or would it instead insist that Greece pay in euros, the currency of contract? The answer is important because, as a practical matter, requiring payment in euro would be tantamount to forcing a default.
That's the familiar narrative, anyway. And I agree. But I believe that the ubiquity of boilerplate terms in these bonds—specifically, clauses selecting governing law (usually foreign) and currency of payment (euro)—is likely to make any dispute over redenomination even more damaging than this suggests.
In the article, I argue that the sparse literature on the question of redenominating sovereign bonds overlooks some sources—especially cases interpreting New York contract law and private international law—that, if extended to Eurozone sovereign bonds, could surprise the market and cause serious global repercussions. I argue that the reason for this is not only that the dominant view overlooks what are likely controlling sources of law. It is that standardization of contract terms across the Eurozone sovereign lending market makes the stakes of surprise that much higher.
If Greece's attempt to redenominate its bonds is declared a default, then the fact that the operative terms in Italian, Spanish, Irish, etc. sovereign bonds are the same or similar makes markets likely to demand unsustainable premiums from those countries. Capital and investor flight could be very rapid. We have seen several previews of this movie over the past few years in the Eurozone, and each time official-sector bailout institutions have saved the day. But the European Union/European Central Bank and IMF probably do not have the resources to stop a broad-based bank run of this nature, to say nothing of the political support necessary to attempt it.
Maybe none of that will happen. Nevertheless, the potential for uniform contract terms to create risk not just to individual third parties but to securities markets seems likely to grow at least as fast as those markets. Using Eurozone sovereign bonds as a case study, I introduce the term "boilerplate shock" to describe the potential for standardized contract terms—when they come to govern the entire market for a given security—to transform an isolated default on a single contract into a threat to the market of which it is a part, and, possibly, to the economy in general. My larger objective here is to foster a discussion of the potential for securities law and private-sector securities lawyers to manage (or alternatively, to contribute to) systemic risk.
I've posted an abstract below and will be returning to the subject. I look forward your comments.
Boilerplate Shock abstract:
No nation was spared in the recent global downturn, but several Eurozone countries arguably took the hardest punch, and they are still down. Doubts about the solvency of Greece, Spain, and some of their neighbors are making it more likely that the euro will break up. Observers fear a single departure and sovereign debt default might set off a “bank run” on the common European currency, with devastating regional and global consequences.
What mechanisms are available to address—or ideally, to prevent—such a disaster?
One unlikely candidate is boilerplate language in the contracts that govern sovereign bonds. As suggested by the term “boilerplate,” these are provisions that have not been given a great deal of thought. And yet they have the potential to be a powerful tool in confronting the threat of a global economic conflagration—or in fanning the flames.
Scholars currently believe that a country departing the Eurozone could convert its debt obligations to a new currency, thereby rendering its debt burden manageable and staving off default. However, this Article argues that these boilerplate terms—specifically, clauses specifying the law that governs the bond and the currency in which it will be paid—would likely prevent such a result. Instead, the courts most likely to interpret these terms would probably declare a departing country’s effort to repay a sovereign bond in its new currency a default.
A default would inflict damage far beyond the immediate parties. Not only would it surprise the market, it would be taken to predict the future of other struggling European countries’ debt obligations, because they are largely governed by the same boilerplate terms. The possibility of such a result therefore increases the risk that a single nation’s departure from the euro will bring down the currency and trigger a global meltdown.
To mitigate this risk, this Article proposes a new rule of contract interpretation that would allow a sovereign bond to be paid in the borrower’s new currency under certain circumstances. It also introduces the phrase “boilerplate shock” to describe the potential for standardized contract terms drafted by lawyers—when they come to dominate the entire market for a given security—to transform an isolated default on a single contract into a threat to the broader economy. Beyond the immediate crisis in the Eurozone, the Article urges scholars, policymakers, and practitioners to address the potential for boilerplate shock in securities markets to damage the global economy.
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Greetings, Glommers! (and hello, Janet and Mario*!)
It’s an honor to join this extremely sharp and thoughtful community of corporate and commercial law scholars for the next two weeks. The Conglomerate has long been one of my favorite law blogs and it’s truly a privilege to walk among these folks for a time (if a bit daunting to follow not just them but Urska Velikonja and her excellent guest posts). Thanks to Gordon, David, and their Glom partners for inviting me to contribute.
By way of biographical introduction, I’m currently a Visiting Assistant Professor at the University of Denver Sturm College of Law, where I teach International Business Transactions and International Commercial Arbitration. Last year, I did a VAP at Hofstra Law School (and taught Bus Orgs and Contracts).
In the next few weeks, I’ll be exploring a number of issues related to law and global finance. I have a particular interest in currencies and monetary law, or the law governing monetary policy. Two of my current projects (on which more soon) address legal aspects of critical macroeconomic policy questions that have emerged since 2008: U.S. monetary policy and the Eurozone sovereign debt crisis.
Without further ado, I will take a page from Urska and kick off my residency here with a somewhat meta question: should scholars refrain from writing about legal issues in macroeconomics, specifically monetary policy?
One thinks of monetary policy decisions—whether or not to raise interest rates, purchase billions of dollars of securities on the secondary market ("quantitative easing"), devalue or change a currency—as fundamentally driven by political and economic factors, not law. And of course they are. But the law has a lot to say about them and their consequences, and legal scholarship has been pretty quiet on this.
Some concrete examples of the types of questions I’m talking about would be:
- Pursuant to its dual mandate (to maintain price stability and full employment), what kinds of measures can the Federal Reserve legally undertake for the purpose of promoting full employment? More generally, what are the Fed’s legal constraints?
- What recognition should American courts extend to an attempt by a departing Eurozone member state to redenominate its sovereign debt into a new currency?
When it comes to issues like these, it is probably even more true than usual that law defines the boundaries of policy. Legal constraints in the context of U.S. monetary policy appear fairly robust even in times of crisis. For example, policymakers themselves often cite law as a major constraint when speaking of the tools available to the Federal Reserve in combating unemployment and deflation post-2008. Leading economics commentators do too. Yet commentary on “Fed law” is grossly underdeveloped. With the exception of a handful of impressive works (e.g., by Colleen Baker and Peter Conti-Brown), legal academics have largely left commentary on the Fed and macroeconomics to the econ crowd.
A different sort of abstention characterizes legal scholarship on the euro crisis. Unlike the question of Fed power, there is a burgeoning literature on various “what-if” euro break-up scenarios. But this writing tends to focus on the impact on individual debtors and creditors, not on the cumulative impact on the global financial system. Again, the macro element is missing.
It is curious that so many legal scholars would voluntarily absent themselves from monetary policy debates. The subtext is that monetary policy questions are either normatively or descriptively beyond the realm of law. If that is scholars’ actual view, I think it is misguided. But maybe the silence is not as revealing as all that.
- One issue is sources. You will not find a lot of useful caselaw on the Fed’s mandate or the Federal Reserve Act of 1913, and the relevant statutes and regulations are not very illuminating. Further, it’s a secretive institution and that makes any research (legal or otherwise) on its inner workings challenging.
- Another issue is focus. Arguably the natural home of legal scholarship on domestic monetary issues, for example, should be administrative law. But the admin scholarly gestalt is not generally as econ-centric as, say, securities law. Meanwhile, securities scholars tend to focus on microeconomic issues like management-shareholder dynamics.
- A final possibility, at least in the international realm, is historical. After World War II, Bretton Woods established a legal framework intended to minimize the chance that monetary policy would again be used as a weapon of war. The Bretton Woods system collapsed over forty years ago, the giants of international monetary law (Frederick Mann, Arthur Nussbaum) wrote (and died) during the twentieth century, and now even some of the leading scholars who followed in their footsteps have passed away. At the same time, capital now flows freely across borders and global financial regulation has become less legalized in general. These factors plus the decline of exchange-rate regulations (most countries let their currencies float) may have undermined scholars’ interest in monetary law. But as the ongoing euro saga demonstrates, international monetary law and institutions remain as critical as ever.
These are some possible explanations for why legal scholars have largely neglected questions of monetary law, but I’m sure I’ve overlooked others. What do you think?
*Pictured are Janet Yellen and Mario Draghi, chiefs, respectively, of the Federal Reserve and the European Central Bank.
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