Banking and Finance Law Commons^™

Seeking True Financial Reform: Ending The Debt-Equity Distinction, Joseph B. Allen

William & Mary Business Law Review

This Note identifies the failure of Congress to address tax incentives for leverage as a principal cause of the recent financial crisis and a fundamental flaw of recent financial reform legislation. Specifically, the Internal Revenue Code provides substantially disparate tax treatment for debt and equity financing by allowing firms to deduct interest payments on indebtedness, but not providing an equivalent deduction for equity funding. This “debt-equity distinction” artificially reduces the cost of capital for debt financing relative to equity financing and encourages firms to over-employ leverage in their capital structure. This in turn increases financial distress costs and externalities to …

Insider Trading, Informed Trading, And Market Making: Liquidity Of Securities Markets In The Zero-Sum Game, Stanislav Dolgopolov

William & Mary Business Law Review

This Article reexamines the nexus of relationships among informed transactions, information asymmetry, and liquidity of securities markets in the context of public policy debates about insider trading and its regulation.The Article analyzes this nexus, with the emphasis on recent empirical studies and developments in the securities industry, from a variety of perspectives and considers the validity of the alleged link between insider trading—as opposed to other forms of informed trading—and market liquidity as a justification for the existence of regulation.

Hawala's Charm: What Banks Can Learn From Informal Funds Transfer Systems, Arya Hariharan

William & Mary Business Law Review

Hawala networks, or Informal Funds Transfer Systems (IFTS), are age-old means of conducting cross-border financial transactions. They thrive in regions where there is inadequate or nonexistent financial infrastructure due to poverty, daunting geography, or endemic conflict. Such regions are home to poor and underserved communities hungry for and in desperate need of financial services. IFTS provide access to these relatively ignored markets through the use of specific transactional mechanisms, payment modalities, and clearing and settlement options. With these innovative and flexible techniques, IFTS have successfully tapped into the exponentially growing global remittance market. Hawala networks are also used by NGOs …

A Critique Of Congressional Proposals To Permit Modification Of Home Mortgages In Chapter 13 Bankruptcy, Mark S. Scarberry

Pepperdine Law Review

Proposed amendments to the Bankruptcy Code permitting strip down of under secured home mortgages to the court-determined value of the homes and other modifications of home mortgages in Chapter 13 would substantially alter the risk characteristics of home mortgages, with likely substantial effects on future mortgage interest rates and future mortgage availability. Thus, the future societal cost of such a change in the law likely would be large. This article explains and supports that thesis, primarily on the ground that the proposed changes would leave mortgage holders with all of the future downside risk in the real property market while …

Confronting The Mortgage Meltdown: A Brief For The Federalization Of State Mortgage Foreclosure Law, Grant S. Nelson

Pepperdine Law Review

This Article argues for federal preemption of state procedures governing the foreclosure of mortgages and security interests in rents. While it also suggests that federal action limiting or prohibiting state anti-deficiency legislation may be appropriate, it leaves this issue to future consideration. Thus, its major focus is to advocate the congressional adoption of both Uniform Nonjudicial Foreclosure Act (UNFA) and Uniform Assignment of Rents Act (UARA) to make them available to all lenders nationwide. However, the federal government has a special stake in greater uniformity for its own account. This is especially the case as to mortgages on real estate. …

Preventing A Return Engagement: Eliminating The Mortgage Purchasers' Status As A Holder-In-Due-Course: Properly Aligning Incentives Among The Parties, Alex M. Johnson Jr.

Pepperdine Law Review

No abstract provided.

The Value(S) Of Foreclosure Law Reform, Melissa B. Jacoby

Pepperdine Law Review

This symposium contribution examines the starkly different values reflected in traditional legal literature on foreclosure law reform in the U.S. as compared to some more recent entries in the wake of the rise of subprime lending and high rates of residential mortgage default. I highlight economist Dean Baker’s “right to rent” proposal, which would give former homeowners leasehold rights at market rates, to illustrate a more progressive set of housing policy considerations and to challenge the assumption that ownership is essential or optimal to promoting various housing objectives.

Bringing Manufactured Housing Into The Real Estate Finance System, Ann M. Burkhart

Pepperdine Law Review

Eight percent of the United States population - more than 23 million people - live in manufactured homes (also called mobile homes). In some years, more than 30% of the new homes sold have been manufactured. Moreover, manufactured housing is the most important form of unsubsidized affordable housing in this country. Up to two-thirds of the new affordable homes built each year have been manufactured. However, the manufactured housing industry currently is struggling to survive a meltdown in its sales and finance markets. A tremendous obstacle to the industry’s recovery is that most manufactured homes are characterized as personal property, …

Reconsidering The Separation Of Banking And Commerce, Mehrsa Baradaran

Scholarly Works

This Article examines the long-held belief that banking and commerce need to be kept separate to ensure a stable banking system. Specifically, the Article criticizes the Bank Holding Company Act (“BHCA”), which prohibits nonbanking entities from owning banks. The recent banking collapse has caused and exacerbated several problematic trends in U.S. banking, especially the conglomeration of banking entities and the homogenization of assets. The inflexible and outdated provisions of the BHCA are a major cause of these trends. Since the enactment of the BHCA, the landscape of U.S. banking has changed dramatically, but the strict separation of banking and commerce …

Exile Without Process: The New York City Housing Authority's Unconstitutional Trespass Notice Program, Lauren J. Zimmerman

Cardozo Law Review

No abstract provided.

Transfer Pricing: Data Dumps And Comparability — Studies From The U.S., U.K., Canada, And Australia, Richard Thompson Ainsworth, Andrew B. Shact

Faculty Scholarship

Comparability is the heart of transfer pricing. The OECD, U.K., Canadian, Australian, and U.S. transfer pricing rules all echo one another on how critically important the comparability analysis is. Performing this analysis and proving comparability, however, is a demanding exercise.

What makes proving comparability so difficult is that the analysis is two sided. Both controlled and uncontrolled transactions must be thoroughly analyzed. Just as much effort needs to be applied to determine the functions, contract terms, risks and the economic conditions for the unrelated party comparables as is spent on analyzing the related parties (taxpayers).

But there is more to …

The Quest For Financial Regulatory Reform: Will A Uniform Fiduciary Standard Guide The Way?, Bonnie M. Treichel

The Journal of Business, Entrepreneurship & the Law

No abstract provided.

Rural Banking: Designing An Effective Legal Framework For Microfinance, Ian Davis

The Journal of Business, Entrepreneurship & the Law

Approximately 1.2 billion people live in extreme poverty, surviving on less than $1 per day. In emerging markets, commercial banks generally serve only ten to twenty percent of the population, excluding eighty to ninety percent of the population from the formal financial sector. Many in this "un-banked" population could benefit from access to financial services. In most developing countries, rural financial markets are based partially on a foundation of law and partially on a non-legal foundation of extra-legal (and sometimes illegal) activities. These legal and non-legal foundations directly influence the operation of rural financial institutions. This comment will discuss the …

"The Subprime Crisis: Why One Bad Turn Leads To Another" At Pepperdine University School Of Law, Richard A. Epstein

The Journal of Business, Entrepreneurship & the Law

No abstract provided.

Implication Of U.S. Venture Capital Theories For The Korean Venture Ecosystem, Kab Lae Kim

The Journal of Business, Entrepreneurship & the Law

No abstract provided.

Is There A Dual Banking System?, Carl Felsenfeld, Genci Bilali

The Journal of Business, Entrepreneurship & the Law

There is a fierce controversy being waged today about the status of the historic dual banking system in American law. National banks (banks chartered by the national government) derive their powers from federal law. States, on the other hand, assert that they should be able to control certain aspects of national bank operations such as consumer protection written as state law. While the national banks acknowledge that states do have certain areas where they may control national bank activities--much contract law, for example, which is essentially state law--the national banks also assert a high level of authority--preemption--over the states where …

Social Enterprise: Doing Well By Doing Good, Muhammad Yunus

The Journal of Business, Entrepreneurship & the Law

No abstract provided.

Dodd-Frank And Basel Iii’S Skin In The Game Divergence And Why It Is Good For The International Banking System , Eric Thompson

Global Business Law Review

The recent financial collapse has illuminated many problems with the global financial system. One of these problems was that the financial system developed in a way that allowed banks to profit by simply making more loans instead of quality loans. After the financial collapse, regulators scrambled to enact new legislation to better manage the financial system and avoid the problems that caused the collapse. One way in which regulators attempted to improve the system was to remove the ability of banks to generate limitless loans in which the banks had no stake. Two such pieces of regulation, the Dodd-Frank Wall …

Wall Street And The Financial Collapse: Anatomy Of A Financial Crisis, United States Senate. Majority And Minority Staff Report.

AALL Legal Website of the Month

Prepared by the Permanent Subcommittee on Investigations under the Senate Committee on Homeland Security and Governmental Affairs, this report examines the various factors contributing to the financial crisis, such as high risk lending, regulatory failure, inflated credit ratings, and investment bank abuses. It contains case studies on Washington Mutual Bank, Office of Thrift Supervision, Moody’s and Standards & Poor’s, Goldman Sachs and Deutsche Bank.

Investor Protection Meets The Federal Arbitration Act, Barbara Black

Faculty Articles and Other Publications

In the past three decades, most recently in AT&T Mobility LLC v. Concepcion, the United States Supreme Court has advanced an aggressive proarbitration campaign, transforming the Federal Arbitration Act (FAA) into a powerful source of anti-consumer substantive arbitration law. In the aftermath of AT&T Mobility, which upheld a prohibition on class actions in a consumer contract despite state law that refused to enforce such provisions on unconscionability grounds, efforts have been made to prohibit investors from bringing class actions or joining claims, including claims under the Securities Exchange Act of 1934 (the Exchange Act). In the most egregious …

Why Mortgage "Formalities" Matter, David A. Dana

Faculty Working Papers

This Article argues that adherence to mortgage formalities regarding foreclosure is valuable for expressive reasons and also as a potential deterrent to future undesirable underwriting and securitization practices. The Article reviews how some courts have in effect written procedural requirements for foreclosure out of the law, and asks why these courts have done so and whether lenders' behavior might have been improved during this housing crisis had the state courts uniformly afforded equal respect to the legal rights of homeowners and those of lenders.

Notice Is Not Enough: Why Tila Requires More Than A Letter Of Intent, Levi Smith

University of Michigan Journal of Law Reform Caveat

The federal Truth in Lending Act (TILA) provides borrowers with protections and remedies against certain actions by lenders. TILA allows, in some circumstances, a borrower to rescind a loan from a lender within a three-year period from when the loan is made. However, a circuit split has developed regarding how the right to rescind must be exercised. Of the circuits that have considered this question, some require a lawsuit to be filed within the three-year period to rescind the loan. Other circuits have held that providing notice of the intent to rescind the loan within the three-year period is sufficient …

A Reflection On Financial Markets, 1 J. Marshall Global Mkt. L.J. 1 (2012), Leo Melamed

John Marshall Global Markets Law Journal

In 1972 the International Monetary Market (the “IMM”) was launched in order to provide the financial world the same ability as the agriculture industry to manage risk. At the time, no one knew if the IMM would succeed, have any merit, or be accepted by other members of the financial world. The IMM’s commencement was before the age of technology—before the onset of computers. Once computers existed, financial engineers had the ability to electronically allocate risk and the world began to acclimate to the idea of computer-generated financial derivatives. This Article stresses that full disclosure and transparency is dire in …

Product Innovation, Clearing, And Competition Among U.S. Derivatives Exchanges, 1 J. Marshall Global Mkt. L.J. 3 (2012), Michael Gorham

John Marshall Global Markets Law Journal

Futures traders are attracted to market liquidity—the ability to buy and sell without the transaction having a large impact on market price. Market liquidity is associated with a large number of buyers and sellers and high average daily volumes of trading. This Article discusses the reluctance of futures traders to switch to a new exchange which does not have as much liquidity as an older, established exchange and the difficulty that these new exchanges face in acquiring even a marginal portion of the market share. These difficulties arise because these exchanges choose to use a clearing house that they own …

The Matryoshka Doll Principle: Transparent Governance Obligations Of Finra Remain Safely Nested Within The Layers Of Existing Securities Regulation, 1 J. Marshall Global Mkt. L.J. 13 (2012), Brittany Mcintosh

John Marshall Global Markets Law Journal

This Article compares the U.S. Supreme Court’s holding in Free Enterprise Fund v. PCAOB to the factors used in Lebron v. National Railroad Passenger Corp. when determining whether a corporation is part of the government (and consequently subject to government control and the President’s removal powers). In Free Enterprise, the U.S. Supreme Court considered factors to determine whether or not an agency is a self-regulatory organization (an independent third party agency that is not subject to government control). Under the Free Enterprise test, the Court held that PCAOB was not an SRO (unlike the Financial Industry Regulatory Authority, Inc.) because …

Maybe There Is More Than One Reason They Call It A Derivative Lawsuit – The Implicit Corporate Duty To Hedge, 1 J. Marshall Global Mkt. L.J. 29 (2012), Joseph Michael Reyes

John Marshall Global Markets Law Journal

Derivatives became the primary scapegoat after the financial markets crashed in 2008 and many large investment banks collapsed in the aftermath. Derivatives were thought to be far too risky and not transparent, even though derivatives were originally contrived in order to mitigate risk. Contrary to popular opinion, if used properly, derivatives are very effective in the mitigation of price changes, currency exchange, and interest rate risk. Moreover, the current regulatory landscape encourages the use of derivatives to hedge risk. The current financial environment encompasses the widespread use and acceptance of products that allow hedging to be a common trade practice. …

Dodd-Frank Whistleblower Program: Whistleblower Prevention Strategies, Criticisms, And Future Implications, 1 J. Marshall Global Mkt. L.J. 59 (2012), Florence Shu-Acquaye

John Marshall Global Markets Law Journal

Section 922 of the Dodd-Frank Wall Street Reform and Consumer Protection Act authorized the SEC to create a committee that would be responsible for promulgating and enforcing rules to reward whistleblowers. Such rewards are to be paid from the Investor Protection Fund, which is embodied in SEC Rule 21F. The whistleblower provision is meant to promote corporate whistleblowing by incentivizing the prevention of financial abuse. Critics contend, however, that the whistleblower program fails to encourage corporations to strengthen internal compliance programs; instead, corporations will put more effort into whistleblower prevention strategies in order to prevent SEC enforcement actions. SEC Rule …

Go West: How The Irs Should Foster Innovation In Its Agents, T. Keith Fogg

Villanova Law Review (1956 - )

No abstract provided.

Ask For Help, Uncle Sam: The Future Of Global Tax Reporting, Susan C. Morse

Villanova Law Review (1956 - )

No abstract provided.

Book Review: Derivatives Traders Do What, Again?, Heather Hughes

Book Reviews

Critics of financial regulation sing a classic refrain, associated with Friedrich Hayek’s theories: Regulation cannot match the temporality of capitalism, as it is based on analysis of what has already transpired in markets that are perpetually evolving. In Collateral Knowledge, Annelise Riles disrupts the Hayekian critique of financial regulation. She presents collateral in derivatives markets as a technique and an aesthetic practice and then contends that state actors also can deploy private actors’ techniques in response to the temporal nature of markets. There is nothing inherently private about the methods of self-governance that private actors use to accommodate temporality. This …