Banking and Finance Law Commons^™

"Contracting" For Credit, Ronald J. Mann

Faculty Scholarship

On a recent day, I used my credit cards in connection with a number of minor transactions. I made eight purchases, and I paid two credit card bills. I also discarded (without opening) three solicitations for new cards, balance transfer programs, or other similar offers to extend credit via a credit card. Statistics suggest that I am not atypical. U.S. consumers last year used credit cards in about 100 purchasing transactions per capita, with an average value of about $70. At the end of the year, Americans owed nearly $500 billion dollars, in the range of $1,800 for every man, …

The Supreme Court, The Solicitor General, And Bankruptcy: Bfp V. Resolution Trust Corporation, Ronald J. Mann

Faculty Scholarship

This chapter tells the story behind BFP v. Resolution Trust Corporation. I see BFP as a case that pitted relatively plain statutory language supporting the debtor-in-possession against policy interests supporting a secured creditor. I argue that an important explanation for the Supreme Court's decision to favor policy over the language of the statute was its perception of a need to protect the availability of non-bankruptcy remedies for secured creditors. Accordingly, I situate my discussion of BFP in the context of the role that the federal government has played in the Supreme Court's cases interpreting the Bankruptcy Code. In general, I …

Remapping The Charitable Deduction, David Pozen

Faculty Scholarship

If charity begins at home, scholarship on the charitable deduction has stayed at home. In the vast legal literature, few authors have engaged the distinction between charitable contributions that are meant to be used within the United States and charitable contributions that are meant to be used abroad. Yet these two types of contributions are treated very differently in the Code and raise very different policy issues. As Americans' giving patterns and the U.S. nonprofit sector grow increasingly international, the distinction will only become more salient.

This Article offers the first exploration of how theories of the charitable deduction apply …

Adding Adequacy To Equity: The Evolving Legal Theory Of School Finance Reform, Richard Briffault

Faculty Scholarship

The law of school finance reform is conventionally described as consisting of three waves, each associated with a distinctive legal theory – a first wave based on federal equal protection arguments, a second equity wave based on state equal protection clauses, and a third adequacy wave based on state constitutional education articles. The asserted shift from equity to adequacy has been credited with the increasing success of school finance reform plaintiffs.

The wave metaphor and especially the differences between the second and third waves, however, have been sharply overstated – temporally, textually, in terms of litigation success, and as a …

The Digital Vat (D-Vat), Richard Thompson Ainsworth

Faculty Scholarship

The most sustained U.S. tax policy debate of the past 30 years concerns proposals to replace and/ or supplement the Federal Income Tax with a consumption tax. Public finance economists and legal tax policy scholars challenged and defended the current income tax system on grounds of fairness, efficiency, and simplicity.

This debate over revamping the national taxing scheme has not been argued purely in the academic forum. Concrete legislative proposals have been advanced for a national retail sales tax, a European-style Value Added Tax, as well as a whole host of what David Bradford calls "the two-tiered consumption taxes."

From …

The Mysterious Ways Of Mutual Funds: Market Timing, Tamar Frankel, Lawrence A. Cunningham

Faculty Scholarship

The term market timing was little known outside the arcane world of mutual funds until state attorneys general from across the country popularized it. The term's innocuous-sounding ring assumed a more pernicious note when the mysterious ways of mutual funds became more transparent. In its pernicious sense, market timing denominates mutual fund insiders using the inscrutable structures of mutual funds to provide benefits selectively to favored participants at the expense of less favored participants.

Mutual fund shares are not like common stocks; investments made using these vehicles are unlike those made through traditional securities markets. While the peculiar features of …

Digital Vat And Development: D-Vat And D-Velopment, Richard Thompson Ainsworth

Faculty Scholarship

This article suggests that the time is right for developing countries to consider adopting a comprehensive, fully digital VAT, (complete with certified software and trusted third party intermediaries who could assume all of the taxpayer's VAT responsibilities) within the limited group of enterprises encompassed by the large taxpayer group.

Since the e-commerce revolution began in the 1990's, tax policy discussions in developed economies have enlisted "e-solutions" to streamline consumption tax administration, as well as to resolve technical problems.

Inspiration came from the marketplace. Policy-makers observed widespread, business-initiated e-solutions to consumption tax compliance problems in a wide spectrum of jurisdiction. There …

Mutual Funds, Pension Funds, Hedge Funds And Stock Market Volatility - What Regulation By The Securities And Exchange Commission Is Appropriate, Roberta S. Karmel

Faculty Scholarship

No abstract provided.

Mutual Funds, Pension Funds, Hedge Funds And Stock Market Volatility: What Regulation By The Securities And Exchange Commission Is Appropriate?, Roberta S. Karmel

Faculty Scholarship

No abstract provided.

The One-Stop-Shop For Vat And Rst: Common Approaches To Eu-U.S. Consumption Tax Issues, Richard Thompson Ainsworth

Faculty Scholarship

In March 2004 the European Commission solicited comments on a proposal to simplify value added tax (VAT) obligations through a one-stop scheme. The proposal was modest in scope. It was designed to build upon the success of a similar scheme that dealt with non-EU established persons supplying digital products to non-taxable EU persons. That scheme is found in Article 26c of the Sixth VAT Directive.

In its March Consultation Paper the Commission proposed that businesses established within the EU be allowed to participate in a one-stop scheme that would be similar to the Article 26c scheme. Limited to B2C transactions, …

How Law Affects Lending, Rainer F.H. Haselmann, Katharina Pistor, Vikrant Vig

Faculty Scholarship

The paper explores how legal change affects lending behavior of banks in twelve transition economies of Central and Eastern Europe. In contrast to previous studies, we use bank level rather than aggregate data, which allows us to control for country level heterogeneity and analyze the effect of legal change on different types of lenders. Using a differences-in-differences methodology to analyze the within country variation of changes in creditor rights protection, we find that the credit supplied by banks increases subsequent to legal change. Further, we show that collateral law matters more for credit market development than bankruptcy law. We also …

Financial Contracts And The New Bankruptcy Code: Insulating Markets From Bankrupt Debtors And Bankruptcy Judges, Edward R. Morrison, Joerg Riegel

Faculty Scholarship

The reforms of 2005 yield important but subtle changes in the Bankruptcy Code's treatment of financial contracts. They might appear only to eliminate longstanding uncertainty surrounding the protections available to financial contract counterparties, especially counterparties to repurchase transactions and other derivative contracts. But the ambit of the reforms is much broader. The expanded definitions – especially the definition of "swap agreement" – are now so broad that nearly every derivative contract is subject to the Code's protection. Instead of protecting particular counterparties to particular transactions, the Code now protects any counterparty to any derivative contract. Entire markets have been insulated …

Executive Compensation: If There's A Problem, What's The Remedy? The Case For "Compensation Discussion And Analysis", Jeffrey N. Gordon

Faculty Scholarship

High levels of executive compensation have triggered an intense debate over whether compensation results primarily from competitive pressures in the market for managerial services or from managerial overreaching. Professors Lucian Bebchuk and Jesse Fried have advanced the debate with their recent book, Pay Without Performance: The Unfulfilled Promise of Executive Compensation, which forcefully argues that current compensation levels are best explained by managerial rent-seeking, not by arm's-length bargaining designed to create the optimum pay and performance nexus. This paper expresses three sorts of reservations with their analysis and advances its own proposals. First, enhancing shareholder welfare is not, as a …

Looking Forward: 2005-2010 - A Sovereign Debt Restructuring Reverie, Steven L. Schwarcz

Faculty Scholarship

In a prior article, the author asked why, if a sovereign debt restructuring treat would be effective and easy to implement, one does not yet exist. There appeared to be at least three reasons: the very novelty of the approach; the opposition of interest groups who believe that a treaty approach would make it too easy for sovereign debtors to default; and the failure of parties to appreciate the importance of a treaty approach, coupled with concern over ceding sovereignty. In this short reverie, the author hopes to show that these reasons are flawed and that, even where bond issues …

The Confused U.S. Framework For Foreign-Bank Insolvency: An Open Research Agenda, Steven L. Schwarcz

Faculty Scholarship

No abstract provided.

The Limits Of Lawyering: Legal Opinions In Structured Finance, Steven L. Schwarcz

Faculty Scholarship

Significant controversy surrounds the issuance of legal opinions in structured finance transactions, particularly where accountants separately use these opinions, beyond their traditional primary use, for determining whether to characterize the transactions as debt. Reflecting at its core the unresolved boundaries between public and private in financial transactions, this controversy raises important issues of first impression: To what extent, for example, should lawyers be able to issue legal opinions that create negative externalities? Furthermore, what should differentiate the roles of lawyers and accountants in disclosing information to investors? Resolution of these issues not only helps to demystify the mystique, and untangle …

Are There Any Checks And Balances On The Government's Power To Check Our Balances? The Fate Of Financial Privacy In The War On Terrorism, Eric J. Gouvin

Faculty Scholarship

In the three years since the terrorist attacks of September 11th, 2001, the laws affecting money laundering and financial privacy in the United States have been changed to give law enforcement agencies easier access to financial information. Although the changes to the law were passed with the claim that they were needed to intercept terrorist financing, the anti-money laundering provisions enacted by the USA PATRIOT Act are being used routinely against non-terrorist criminal suspects as part of regular law enforcement processes. Although the apprehension of ordinary criminals by any means available will sound perfectly ceptable to many, it is at …

Derivatives And The Bankruptcy Code: Why The Special Treatment?, Franklin R. Edwards, Edward R. Morrison

Faculty Scholarship

The collapse of Long Term Capital Management (LTCM) in Fall 1998 and the Federal Reserve Bank's subsequent efforts to orchestrate a bailout raise important questions about the structure of the Bankruptcy Code. The Code contains numerous provisions affording special treatment to financial derivatives contracts, the most important of which exempts these contracts from the "automatic stay" and permits counterparties to terminate derivatives contracts with a debtor in bankruptcy and seize underlying collateral. No other counterparty or creditor of the debtor has such freedom; to the contrary, the automatic stay prohibits them from undertaking any act that threatens the debtor's assets. …

Some Reflections On Two-Sided Markets And Pricing, Victor P. Goldberg

Faculty Scholarship

We want to join Bob Pitofsky in thanking the participants in this symposium for their thoughtful contributions. The literature on two-sided markets, both analytical and policy oriented, has mushroomed and this timely set of essays represents a significant contribution. The first generation of this literature grew up around the credit card industry, largely as a result of the antitrust litigation that challenged a wide range of standard practices in that industry. However, the theoretical problems that were first uncovered in this context extend to many other activities as well. The full range of papers found in this symposium, which have …

Bank Mergers In North America: Comparing The Approaches In The United States And Canada, Eric J. Gouvin

Faculty Scholarship

This Article provides a summary comparison of the processes in the United States and Canada for governmental approval of bank mergers. The topic came to prominence in 1998 when four of Canada's five largest banks unveiled plans that would have resulted in the Royal Bank of Canada merging with the Bank of Montreal and the Toronto Dominion Bank combining with the Canadian Imperial Bank of Commerce ("CIBC"). These proposed mergers were rejected by the then Finance Minister, Paul Martin. The reasons given included: (1) the resulting banking industry structure would have concentrated too much economic power in the hands of …

Contextual Analysis Of Tax Ownership, Alex Raskolnikov

Faculty Scholarship

Ownership is one of the most fundamental concepts in tax law, yet it remains remarkably confused. The uncertainty inhibits tax planning, leads to inconsistent responses from the government, and produces unexpected outcomes in the courts. There has been no shortage of scholarly attention to the issue, but most of the commentary has been either exceedingly narrow or focused on far-reaching reforms. As a result, the law of tax ownership lacks conceptual foundation. This article attempts to remedy the deficiency by proposing a comprehensive approach to tax ownership and demonstrating that the doctrine may (and should) be significantly clarified without a …

Making Sense Of Payments Policy In The Information Age, Ronald J. Mann

Faculty Scholarship

Although I had been mulling over the ideas in this Essay for quite some time, I finally was driven to put the ideas on paper by a call from a colleague one Friday afternoon. He recently had purchased something on the Internet. Regrettably, the Internet merchant had never shipped the goods; apparently the merchant had failed. My colleague had given the merchant the number from his Visa card to pay for the transaction. Being well educated, my colleague assumed that he could have the charge removed from his credit card statement.

When he called the toll-free service line for the …

Do Patents Facilitate Financing In The Software Industry?, Ronald J. Mann

Faculty Scholarship

This Article is the first part of a wide study of the role of intellectual property in the software industry. Unlike previous papers that focus primarily on software patents – which generally are held by firms that are not software firms – this Article provides a thorough and contextually grounded description of the role that patents play in the software industry itself.

The bulk of the Article considers the pros and cons of patents in the software industry. The Article starts by emphasizing the difficulties that prerevenue startups face in obtaining any value from patents. Litigation to enforce patents is …

Patents, Venture Capital, And Software Start-Ups, Ronald J. Mann, Thomas W. Sager

Faculty Scholarship

This paper analyzes the relation between the patenting behavior of startup firms and the progress of those firms through the venture capital cycle. Linking data relating to venture capital financing of software startup firms with data concerning the patents obtained by those firms, we find significant and robust positive correlations between patenting and several variables measuring the firm's performance (including number of rounds, total investment, exit status, receipt of late stage financing, and longevity). The data also show that (1) only about one in four venture-backed software firms acquired even one patent during the period of the study; (2) patenting …

Going-Private Decisions And The Sarbanes-Oxley Act Of 2002: A Cross-Country Analysis, Ehud Kamar, Pinar Karaca-Mandic, Eric L. Talley

Faculty Scholarship

This article investigates whether the passage and the implementation of the Sarbanes-Oxley Act of 2002 (SOX) drove firms out of the public capital market. To control for other factors affecting exit decisions, we examine the post-SOX change in the propensity of public American targets to be bought by private acquirers rather than public ones with the corresponding change for foreign targets, which were outside the purview of SOX. Our findings are consistent with the hypothesis that SOX induced small firms to exit the public capital market during the year following its enactment. In contrast, SOX appears to have had little …

Global Changes In Regulating Corporate Auditors: A Comparative Assessment, Richard Thompson Ainsworth

Faculty Scholarship

Auditor independence was a global concern of financial regulators in the 1990's. Some observers saw this in a positive light, a natural development. Adjusting auditor independence rules was a manifestation of global convergence in corporate governance structures. New rules, especially rules leaning toward a harmonized system were welcome.

There was a more sobering view. This view held that global regulators were less concerned with convergence than they were with a sense of impending disaster. Things had gone too far. Significant, maybe even radical change was needed. The independence of corporate auditors had eroded; trust had been fundamentally compromised in the …

The Securities And Exchange Commission Goes Abroad To Regulate Corporate Governance, Roberta S. Karmel

Faculty Scholarship

No abstract provided.

The Muddled Duty To Disclose Under Rule 10b-5, Donald C. Langevoort, G. Mitu Gulati

Faculty Scholarship

No abstract provided.

Sovereign Debt Reform And The Best Interest Of Creditors, William W. Bratton, G. Mitu Gulati

Faculty Scholarship

In April 2002 the International Monetary Fund introduced a sovereign bankruptcy proposal only to be rebuffed by the United States Treasury. Where the IMF wanted a mandatory bankruptcy regime, the Treasury wanted to solve distress problems with contractual devices. Sovereign bondholders and sovereign issuers themselves flatly rejected both proposals, even though they were nominally the beneficiaries of both proponents. This Article addresses and explains this bondholder reaction. In so doing, it takes a highly skeptical view of the IMF's proposal even as it shows that the incentive structure surrounding sovereign lending renders untenable the Treasury's contractarian proposal. The Article's analysis …

Speculation On The Future Of The Bank For International Settlements, A , Carl Felsenfeld, Genci Bilali

Faculty Scholarship

Financial crises around the globe place countries at risk. Not only do less developed countries like Mexico and Argentina tremble from the inadequacies of their banking systems, but large and developed economies such as Japan suffer similar apprehension. As a result, national financial authorities find themselves looking for a type of international financial entity that can coordinate the efforts of these authorities in maintaining safety and soundness in their respective financial and banking sectors. This being the case, financial markets need the assistance of an international institution that can regulate national banking systems and, in return, can avoid any future …