Law Commons^™

Pay For Regulator Performance, Frederick Tung, M Todd Henderson

Faculty Scholarship

Few doubt that executive compensation arrangements encouraged the excessive risk taking by banks that led to the recent Financial Crisis. Accordingly, academics and lawmakers have called for the reform of banker pay practices. In this Article, we argue that regulator pay is to blame as well, and that fixing it may be easier and more effective than reforming banker pay. Regulatory failures during the Financial Crisis resulted at least in part from a lack of sufficient incentives for examiners to act aggressively to prevent excessive risk. Bank regulators are rarely paid for performance, and in atypical cases involving performance bonus …

An Industry-Specific Vat In Michigan - Objective Valuation In The Retail Gasoline Trade, Richard Thompson Ainsworth

Faculty Scholarship

New York adopted an industry-specific value added tax (VAT) to solve problems with virtual intermediaries (room remarketers) under its hotel accommodations tax. The New York VAT resembles the VAT used in the European Union (EU). It is a credit-invoice VAT that subjectively values supplies.

Michigan has also adopted an industry-specific credit-invoice VAT, however the targeted industry is the retail gasoline trade. The valuation method is objective, rather than subjective. In valuing supplies objectively rather than subjectively, the Michigan VAT resembles the exception provisions that are found in most VATs around the globe. Objective valuations are used in VATs when dealing …

Proving Racial Discrimination And Monitoring Fair Lending Compliance: The Missing Data Problem In Nonmortgage Credit, Winnie F. Taylor

Faculty Scholarship

No abstract provided.

Technology Solves Mtic - Vln, Rtvat, D-Vat Certification, Richard Thompson Ainsworth

Faculty Scholarship

Technology solves missing trader intra-community (MTIC) fraud. This should come as no surprise. MTIC is technology-intensive fraud – its solution should also be technology-intensive.

MTIC is getting to be an out-dated term. Now that missing trader fraud has move into services it is no longer confined to intra-community trade, and the older acronym should be adjusted to MTIC/MTEC fraud (with MTEC standing for missing trader extra-community).

MTIC/MTEC fraud is fully digitized (the supply, the movement of the supply, and the funding). The consequences should be clear. MTIC/MTEC must be prevented (before the fact), not pursued (after the fact). In the …

Transfer Pricing & Business Restructurings: Intangibles, Synergies, And Shelters, Richard Thompson Ainsworth, Andrew Shact

Faculty Scholarship

Transfer pricing in business restructuring is attracting global attention. In the past two years two key policy-making groups have released three substantive documents on this topic. The Organization of Economic Cooperation and Development (OECD) issued two position statements while the Joint Committee on Taxation (JCT) issued one. While restructurings are a very common commercial practice, until recently it has been uncommon to apply transfer pricing criteria when examining them in detail.

Essentially, the OECD has overlooked that a unique and valuable intangible is created during the restructuring process. By not acknowledging that this intangible in the mix, the OECD fails …

New York Adopts A Vat, Richard Thompson Ainsworth

Faculty Scholarship

On August 13, 2010 the New York State Department of Taxation and Finance, Office of Tax Policy Analysis, Taxpayer Guidance Division released Amendments Affecting the Application of Sales Tax to Rent Received for Hotel Occupancy by Room Remarketers. The legislative revision it considers (Chapter 57 of the Laws of 2010) was effective September 1, 2010. The changes brought in by this Chapter effectively converted New York’s Hotel Room Occupancy Tax from a single-stage retail sales tax to multi-stage European-style VAT. This paper considers the New York VAT in hotel accommodations in three sections. The first defines a European-style credit-invoice VAT …

The Federal Home Loan Bank System: A Vehicle For Job Creation And Job Retention, Cornelius K. Hurley, Rebecca Hicks Gallup

Faculty Scholarship

This paper discusses three proposals aimed at reorienting the mission of the System and of the FHLBanks: (1) liberalizing the System's collateral requirements to make the use of small business and other job-creation loans a more viable source of collateral for advances; (2) expanding the membership requirements of the FHLBanks to allow those financial institutions that currently lend to small businesses to become members; and (3) creating a job creation program that uses some of the best practices of the System's Affordable Housing Program. Taken together or separately, these proposals utilize the unique structure of the FHLB System as described …

Justifying Board Diversity, James A. Fanto, Lawrence M. Solan, John M. Darley

Faculty Scholarship

No abstract provided.

My Brother's Keeper: An Empirical Study Of Attorney Facilitation Of Money-Laundering Through Commercial Transactions, Lawton P. Cummings, Paul T. Stepnowsky

Faculty Scholarship

In recent years, various “gatekeeping initiatives” have been introduced through inter-governmental standard-setting organizations, such as the Financial Action Task Force, as well as through federal legislation in the United States, which seek to apply the mandatory customer due diligence, record keeping, and suspicious activity reporting obligations contained in the existing anti-money laundering regime to lawyers when they conduct certain commercial transactions on behalf of their clients. The organized bar has argued against such attempts to regulate it, in part, due to the lack of empirical data showing that, as a threshold matter, lawyers unwittingly aid money laundering in a significant …

Will Cutting The Payroll Tax Increase Jobs? (Empirical Evidence From The Eu Vat), Richard Thompson Ainsworth

Faculty Scholarship

Red Ink Rising, the Peterson–Pew Commission on Budget Reform’s report presents the country with a fiscal/employment dilemma – Congress must act immediately to stem the federal debt, but it must move carefully lest it harm employment in the fragile economy. In short, we must act fast and slow – we must decrease the debt and increase employment. This is a difficult task.

The Peterson-Pew dilemma (notably its jobs-creation aspect) was taken to heart by both of the reform commissions that issued reports soon thereafter (National Commission on Fiscal Responsibility and Reform, The Moment of Truth and The Debt Reduction Task …

Vat Fraud: Mtic & Mtec - The Tradable Services Problem, Richard Thompson Ainsworth

Faculty Scholarship

Tradable services – VoIP termination services, mobile minutes, software as a service (SaaS), or almost any service bought or sold in the “cloud” – are a distinct class of taxable supplies. These service-based supplies both resemble and differ fundamentally from goods. They also differ from services that are consumed-on-purchase (consumed services).

Tradable services are designed from the beginning for re-sale. They are hybrid supplies that behave commercially like goods, but have functional attributes that make them hard to distinguish from services generally. When determining the place of supply/ place of taxation for these kinds of supplies, their hybrid character presents …

Is The Public Utility Holding Company Act A Model For Breaking Up The Banks That Are Too-Big-To-Fail, Roberta S. Karmel

Faculty Scholarship

No abstract provided.

Is The Public Utility Holding Company Act A Model For Breaking Up The Banks That Are Too-Big-To-Fail, Roberta S. Karmel

Faculty Scholarship

No abstract provided.

Reparations, Microfinance, And Gender: A Plan, With Strategies For Implementation, Anita Bernstein, Hans D. Siebel

Faculty Scholarship

No abstract provided.

Restoring Transparency To Automated Authority, Frank Pasquale

Faculty Scholarship

No abstract provided.

Black Swans And Black Elephants In Plain Sight: An Empirical Review Of Central Bank Independence, Timothy A. Canova

Faculty Scholarship

No abstract provided.

Chapman Dialogue And Law Review Symposium Keynote Address: Ex Ante Versus Ex Post Approaches To Financial Regulation, Steven L. Schwarcz

Faculty Scholarship

Ideal financial regulation would work ex ante, to prevent financial failures. Once a failure occurs, there may already be economic damage, and it may be difficult to stop the failure from spreading and becoming systemic. The reality, though, is that preventing financial failures should be only one role for regulators. Even an optimal prophylactic regulatory regime cannot anticipate and prevent every failure. This paper, which formed my Chapman Dialogue Address at Chapman University School of Law and the keynote speech at Chapman Law Review’s 2011 Symposium on the Future of Financial Regulation, attempts to contrast fundamental differences between ex ante …

Greek Debt: The Endgame Scenarios, Mitu Gulati, Lee C. Buchheit

Faculty Scholarship

Perhaps Greece -- a country with a debt to GDP already approaching 150 percent and set to move even higher -- avoids a debt restructuring. Perhaps not.

What are the possible scenarios if Greece cannot return to the capital markets to refinance this gargantuan debt stock once its EU/IMF bailout package expires in two years time? What would a Greek debt restructuring look like after mid-2013? And (sharp intake of breath here) what would happen if such a debt restructuring were undertaken before that point?

Identifying And Managing Systemic Risk: An Assessment Of Our Progress, Steven L. Schwarcz

Faculty Scholarship

Although a chain of bank failures remains an important symbol of systemic risk, the ongoing trend towards disintermediation—or enabling companies to directly access the ultimate source of funds, the capital (i.e., financial) markets, without going through banks or other financial intermediaries—is making these failures less critical than in the past. While banks and other financial institutions remain important sources of capital, companies today are able to obtain most of their financing through financial markets without the use of intermediaries. As a result, financial markets themselves are increasingly central to any examination of systemic risk.

Helping Microfinance Become Commercially Sustainable, Steven L. Schwarcz

Faculty Scholarship

Microfinance primarily refers to the making of small loans to low-income individuals and the poor, to enable them to start or expand small businesses. Currently, most microfinance loans are made through nonprofit microfinance institutions (MFIs) that receive donor money. However, donor-funded loans can account for only a small portion of the need. Microfinance analysts estimate, for example, that total market potential is $300 billion, of which only ten percent is currently being captured. Increasingly, the shortfall in funding is being met by commercial banks. But commercial-bank intermediation is expensive, with a global average effective interest rate (on commercial microfinance loans) …

Evolving Executive Equity Compensation And The Limits Of Optimal Contracting, David I. Walker

Faculty Scholarship

Executive equity compensation in the U.S. is evolving. At the turn of the millennium, stock options dominated the equity pay landscape, accounting for over half of the aggregate ex ante value of senior executive pay at large public companies, while restricted stock and similar compensation accounted for only about ten percent. Beginning in 2006, stock grants have displaced options as the single largest component of senior executive compensation at these firms. Accompanying this shift has been increased variation among companies in their relative emphasis on stock and options in equity pay packages. Both phenomena provide an opportunity for a rich …

Pricing Terms In Sovereign Debt Contracts: A Greek Case Study With Implications For The European Crisis Resolution Mechanism, Mitu Gulati, Stephen J. Choi, Eric A. Posner

Faculty Scholarship

Conventional wisdom holds that boilerplate contract terms are ignored by parties, and thus are not priced into contracts. We test this view by comparing Greek sovereign bonds that have Greek choice-of-law terms and Greek sovereign bonds that have English choice-of-law terms. Because Greece can change the terms of Greek-law bonds unilaterally by changing Greek Law, and cannot change the terms of English-law bonds, Greek-law bonds should be riskier, with higher yields and lower prices. The spread between the two types of bonds should increase when the probability of Greek default increases. Recent events allow us to test this hypothesis, and …

Capture In Financial Regulation: Can We Redirect It Toward The Common Good?, Lawrence G. Baxter

Faculty Scholarship

“Regulatory capture” is central to regulatory analysis yet is a troublesome concept. It is difficult to prove and sometimes seems refuted by outcomes unfavorable to powerful interests. Nevertheless, the process of bank regulation and supervision fosters a closeness between regulator and regulated that would seem to be conducive to “capture” or at least to fostering undue sympathy by regulators for the companies they oversee. The influence of very large financial institutions has also become so great that financial regulation appears to have become excessively distorted in favor of these entities and to the detriment of many other legitimate interests, including …

Keynote Address: Identifying And Managing Systemic Risk: An Assessment Of Our Progress, Steven L. Schwarcz

Faculty Scholarship

This short address attempts to provide a succinct overview, critiquing how well the Dodd-Frank Act identifies and manages systemic risk.

Drafting A Model Collective Action Clause For Eurozone Sovereign Bonds, Mitu Gulati, Lee C. Buchheit

Faculty Scholarship

In the wake of the Eurozone sovereign debt crisis, the European financial authorities announced last November that all Eurozone sovereign bonds issued after mid-2013 must contain an identical collective action clause (CAC) in order, if necessary, to facilitate a restructuring of those
instruments.

CACs in sovereign bonds have been the subject of considerable attention over the last ten years. They were introduced into sovereign bonds governed by U.S. law only in early 2003. Yet a surprising number of versions of the clause can be found in modern sovereign bonds.

The history of the research and development of this contractual provision …

Financial Industry Self-Regulation: Aspiration And Reality, Steven L. Schwarcz

Faculty Scholarship

This essay on financial industry self-regulation responds to Professor Saule Omarova’s recent article on that topic, Wall Street as Community of Fate: Toward Financial Industry Self-Regulation, 159 U. PA. L. REV. 411 (2011).

Foreword: The Three And A Half Minute Transaction: Boilerplate And The Limits Of Contract Design, Mitu Gulati, Robert E. Scott

Faculty Scholarship

The Hofstra Law Review has organized an “Ideas” symposium around our book manuscript “The Three and a Half Minute Transaction” (see http://ssrn.com/abstract=1937900). The idea for this symposium came from a debate that occurred at a faculty workshop at the Hofstra Law School some months ago where we were presenting our book manuscript. The topics of conversation included the following: the future of the current big-law-firm model, what value lawyers add in commercial transactions that use boilerplate contracts, why (and whether) boilerplate contracts are so slow to change, why law firms do not generally have R&D departments, the resolution of the …

Pay For Banker Performance: Structuring Executive Compensation For Risk Regulation, Frederick Tung

Faculty Scholarship

Excessive risk taking by firm managers did not originate with the Financial Crisis of 2007-08. Though bankers had special incentives to take big risks in the period before the Crisis, the incentive effects of equity-based compensation have been understood for some time. Among other things, equity compensation tends to induce greater risk taking by aligning managers’ risk preferences with those of equity holders. Longstanding government guaranties of bank liabilities additionally served to intensify bankers’ risk taking incentives.

I propose to ameliorate this gambler’s incentive with a new approach to compensation at the largest banks, one that explicitly accounts for the …

Activist Distressed Debtholders: The New Barbarians At The Gate?, Michelle M. Harner

Faculty Scholarship

The term “corporate raiders” previously struck fear in the hearts of corporate boards and management teams. It generally refers to investors who target undervalued, cash-flush or mismanaged companies and initiate a hostile takeover of the company. Corporate raiders earned their name in part because of their focus on value extraction, which could entail dismantling a company and selling off its crown jewels. Today, the term often conjures up images of Michael Milken, Henry Kravis or the movie character Gordon Gekko, but the alleged threat posed to companies by corporate raiders is less prevalent—at least with respect to the traditional use …

Exploring The Wfo Option For Global Banking Regulation, Lawrence G. Baxter

Faculty Scholarship

The Global Financial Crisis and the global operations by participants in the financial services industry has led observers and even senior public representatives to call for global regulatory solutions that go beyond the current, transnational regulatory network (TRN) framework provided by the G20, the Financial Stability Board and the Basel Committee on Banking Supervision. The concept of a global banking regulator has often been advocated, but this is not remotely politically viable. Recently the imaginative concept of a World Financial Organization (WFO), that would follow the model of the World Trade Organization (WTO), has been proposed. Although attractive in that …