Banking and Finance Law Commons^™

Securitization And Post-Crisis Financial Regulation, Steven L. Schwarcz

Faculty Scholarship

There are few types of securities as internationally traded as those issued in securitization (also spelled securitisation) transactions. The post-financial crisis regulatory responses to securitization in the United States and Europe are, at least in part, political and ad hoc. To achieve a more systematic regulatory framework, this article examines how existing regulation should be supplemented by identifying the market failures that apply distinctively to securitization and analyzing how those market failures could be corrected. Among other things, the article argues that Europe’s regulatory framework for simple, transparent, and standardised (“STS”) securitizations goes a long way towards addressing complexity as …

The Foreign Account Tax Compliance Act: The Solution Or The Problem?, Sophie S. Chou

CMC Senior Theses

Tax evasion has been happening for decades, but after the highly publicized cases with two foreign banks, LGT and UBS, the United States (US) is cracking down on tax evaders. The latest addition to the Internal Revenue Service (IRS)’s repertoire of enforcement tools is the Foreign Account Tax Compliance Act, otherwise known as FATCA. The Act was enacted to incentivize tax information release by foreign financial institutions (FFIs) who would otherwise face a 30% withholding tax on any US source income. The question was whether or not the design of the Act and its implementation successfully met this goal.

This …

Treating The New European Disease Of Consumer Debt In A Post-Communist State: The Groundbreaking New Russian Personal Insolvency Law, Jason J. Kilborn

Brooklyn Journal of International Law

This article examines the tumultuous transition from restrictive Communism to the debt-fueled consumer economy of modern Russia. In particular, it surveys Russia’s legal response to severe debt distress, situating it in the context of nearly one thousand years of historical development. Effective 1 October 2015, Russia finally joined most of its European neighbors in adopting a personal bankruptcy law, with characteristics that reflect both evolving international best practices and a series of lessons not learned. This article offers the first detailed exposition in English of the two steps forward represented by this new law, as well as an evaluation of …

The Challenge Of Fiduciary Regulation: The Investment Advisors Act After Seventy-Five Years, Roberta S. Karmel

Brooklyn Journal of Corporate, Financial & Commercial Law

Seventy-five years after its enactment the Investment Advisers Act of 1940 has advanced from a relatively weak statute merely registering advisers with the Securities and Exchange Commission (SEC) to a more robust law imposing fiduciary responsibilities on advisers. Over the years, the number of investment advisers and the number of their clients have increased greatly. The SEC therefore has been pressured by Congress to develop a harmonized fiduciary standard for broker-dealers and advisers and also to develop and enforce a greater degree of oversight over the advisory industry. These developments have raised the questions of how to fund such efforts …

Regulatory Incentive Realignment And The Eu Legal Framework Of Bank Resolution, Andromachi Georgosouli

Brooklyn Journal of Corporate, Financial & Commercial Law

Risks associated with incentive misalignment are liable to seriously jeopardize the effectiveness of bank resolution, when not properly contained. This Article considers the management of misaligned incentives between regulators that are found in a vertical relationship of public governance. Using the EU legal framework of bank resolution as its case study, this Article explores the effectiveness of the quasi-enforcement powers of the Single Resolution Board (SRB) and, where relevant, of the European Banking Authority (EBA) as an incentive realignment legal technique. Two principal difficulties are identified: on the one hand, the problematic interinstitutional dynamic of the SRB and the EBA …

The Customer's Nonwaivable Right To Choose Arbitration In The Securities Industry, Jill I. Gross

Brooklyn Journal of Corporate, Financial & Commercial Law

Arbitration has been the predominant form of dispute resolution in the securities industry since the 1980s. Virtually all brokerage firms include predispute arbitration agreements (PDAAs) in their retail customer contracts, and have successfully fought off challenges to their validity. Additionally, the industry has long mandated that firms submit to arbitration at the demand of a customer, even in the absence of a PDAA.

More recently, however, brokerage firms have been arguing that forum selection clauses in their agreements with sophisticated customers (such as institutional investors and issuers) supersede firms’ duty to arbitrate under FINRA Rule 12200. Circuit courts currently are …

The Sixth Pillar Of Anti-Money Laundering Compliance: Balancing Effective Enforcement With Financial Privacy, Maria A. De Dios

Brooklyn Journal of Corporate, Financial & Commercial Law

The U.S. government has responded to the increase of financial crimes, including money laundering and terrorist financing, by requiring that financial institutions implement anti-money laundering compliance programs within their institutions. Most recently, the Financial Crimes Enforcement Network exercised its regulatory powers, as authorized by the Treasury Department, by proposing regulations that now explicitly add customer due diligence to the preexisting anti-money laundering regime. The policy behind the government’s legislative and regulatory measures is clear—financial institutions must ensure that they are protected from and not aiding in the illegal efforts of criminals. The complexity and insidiousness of these financial crimes makes …

A Cautionary Look At A Cautionary Doctrine, Andrew W. Fine

Brooklyn Journal of Corporate, Financial & Commercial Law

Optimism is an indispensable element of effective salesmanship. It is therefore quite natural for the directors of public companies to want to optimistically tout the potential long-term benefits of investing in their companies. After all, directors of public companies must be empowered to attract the attention and money of American investors. But what happens if these long-term projections fail to come true? Who is to blame for long-term projections that are simply unrealistic? A doctrine called the “bespeaks caution” doctrine has emerged in order to govern these inquiries, and holds that these optimistic forward-looking statements are legally immunized provided that …

Safety First: The Deceptive Allure Of Full Reserve Banking, Morgan Ricks

Vanderbilt Law School Faculty Publications

In Safe Banking, Professor Adam Levitin joins a venerable tradition in the money and banking literature. That tradition, called full reserve banking, has claimed a number of illustrious supporters over the years, including Professors Irving Fisher, Henry Simons, and Milton Friedman. The basic idea of full re­serve banking is seductive in its simplicity: "banks" should own nothing but physical cash. Because a full reserve bank has no in­vestments, it can suffer no investment losses. A run on such a bank would be harmless, because the bank would never fail to meet redemptions (barring any loss or theft of cash). The …

Inclusive Crowdfunding, Andrew A. Schwartz

Publications

Securities “crowdfunding” — the sale of unregistered securities over the internet to large numbers of investors, each of whom contributes only a small amount — is a new concept that comes in at least three types: (1) retail crowdfunding under Title III of the federal JOBS Act of 2012; (2) accredited crowdfunding under Title II of the JOBS Act, which is legally restricted to accredited investors; and (3) intrastate crowdfunding under state law. Which of these three types — all at the dawn of their existence — holds the most promise?

Without claiming to finally resolve the issue, this Article …

The Funny Thing About Forced Arbitration And The Cfpb, Joanne Doroshow

Other Publications

No abstract provided.

Capital, Inequality, And Self-Determination: Creating A Sovereign Financial System For Native American Nations, W. Gregory Guedel, Ph.D, J. D. Colbert

American Indian Law Review

No abstract provided.

Free Trade, The Washington Consensus, And Bilateral Investment Treaties The South African Journey: A Rethink On The Rules On Foreign Investment By Developing Countries, Ziyad Motala

American University Business Law Review

No abstract provided.

Access To Capital Or Just More Blues? Issuer Decision-Making Post Sec Crowdfunding Regulation, Patricia Hureston Lee

All Faculty Scholarship

Crowdfunding is an alternative for Issuers seeking funds for their businesses. On October 2015, the Securities Exchange Commission (SEC) released final crowdfunding regulations that became effective May 20162 as a charge of the Jobs Act, Title III (the “Crowdfund Act”). Issuers can now secure crowdfunded investments without a securities registration.

This article evaluates investment-based crowdfunding from the perspective of one group that has been neglected from the crowdfunding scholarship — Issuers that seek financing under this new framework. In Section I, the author summarizes the new crowdfund regulations, which create a new financing opportunity vastly different from previous types of …

The Enduring Legacy Of Modern Efficient Market Theory After Halliburton V. John, Mark Klock

Georgia Law Review

In 1988 the U.S. Supreme Court approved the fraud on the market theory for securities trading in an efficient market thus enabling securities class action plaintiffs to establish their required reliance element of the case through a rebuttable presumption. Basic v. Levinson held that efficient markets incorporate publicly disseminated information and investors who purchased or sold securities in an efficient market therefore relied on any publicly disseminated misinformation. For more than a quarter century since Basic, the efficient market theory has sustained a barrage of assaults from commentators who object to the use of economic theory in legal decision making …

When Extrinsic Incentives Displace Intrinsic Motivation: Designing Legal Carrots And Sticks To Confront The Challenge Of Motivational Crowding-Out, Kristen Underhill

Faculty Scholarship

The rise of “nudges” has inspired countless efforts to encourage individual choices that maximize personal and collective welfare, with a preference for less restrictive tools such as setting default options or reordering choice sets. As part of this trend, there has been renewed interest in the behavioral impacts of incentives – namely, rewards or penalties for shaping individual choices, including but not limited to financial incentives. Explicit incentives are pervasive in the law, including carrots offered by governments (for example, tax deductions for charitable contributions, rebates for recycling, sentence reductions for prisoners who complete drug rehabilitation programs, and incentives for …

Regulating The U.S. Treasury Market, Jerry W. Markham

Faculty Publications

The market for U.S. Treasury securities is critical to our monetary policy and government funding. It also serves as a benchmark for pricing other investments and has provided a haven for investors seeking safety and stability. However, concern has recently arisen that “primary dealers” in that market might have manipulated prices. In addition, an unusual market volatility event that occurred in October 2014, and the growth of high-frequency trading have raised further questions over the adequacy of regulation in that market. This article addresses those concerns. It first describes the U.S. Treasury market and identifies efforts by traders over the …

The Appearance And The Reality Of Quid Pro Quo Corruption: An Empirical Investigation, Christopher Robertson, D. Alex Winkelman, Kelly Bergstrand, Darren Modzelewski

Faculty Scholarship

The Supreme Court says that campaign finance regulations are unconstitutional unless they target "quid pro quo" corruption or its appearance. To test those appearances, we fielded two studies. First, in a highly realistic simulation, three grand juries deliberated on charges that a campaign spender bribed a Congressperson. Second, 1271 representative online respondents considered whether to convict, with five variables manipulated randomly. In both studies, jurors found quid pro quo corruption for behaviors they believed to be common. This research suggests that Supreme Court decisions were wrongly decided and that Congress and the states have greater authority to regulate campaign finance. …

Recent Developments In Bankruptcy Regulation: Mortgage Servicing Rules, The Fdcpa, And The Cfpb, Frederick Tung, Alane A. Becket, Sarah Bolling Mancini, Nick Wooten

Faculty Scholarship

MS. DEPPERT: Welcome back. Before we begin, I'd like to take this opportunity to introduce you to our second panel of the day, our Consumer Panel, which will discuss Recent Developments in Bankruptcy Regulation, including mortgage servicing rules, the Fair Debt Collection Practices Act (the "FDCPA"), and the Consumer Financial Protection Bureau (the "CFPB"). This afternoon we are privileged to have the following distinguished panelists join us. First we have Alane Becket, Managing Partner at Becket & Lee LLP, in Malvern, Pennsylvania, a law firm representing primarily consumer lenders in bankruptcy proceedings. Ms. Becket was elected to the Board of …

A Story Of Three Bank-Regulatory Legal Systems: Contract, Financial Management Regulation, And Fiduciary Law, Tamar Frankel

Faculty Scholarship

How should banks be regulated to avoid their failure? Banks must control the risks they take with depositors' money. If depositors lose their trust in their banks, and demand their money, the banks will fail. This article describes three legal bank regulatory systems: Contract with depositors (U.S.); a mix of contract and trust law, but going towards trust (Japan), and a full trust-fiduciary law regulating banks (Israel). The article concludes that bank regulation, which limits the banks' risks and conflicts of interest, helps create trustworthy banks that serve their country best.