Banking

Following a Year of Scandal, Deutsche Bank Looks toward the Future

By Lindsay Szymanski, J.D. Candidate 2019 | Posted on

In early March 2017, Deutsche Bank announced that its latest restructuring will include an 8.5 billion capital raising scheme, a reorganization of its retail business, and a merging of its market business and investment bank.

This announcement comes on the heels of a turbulent year for the former investment powerhouse. In December, the bank agreed to a multimillion-dollar settlement with the United States Department of Justice for its involvement in the 2008 financial crises. Then in January, Deutsche Bank announced it would pay millions of dollars in fines for helping Russian investors launder nearly $10 billion. This is a far cry from bank’s well-regarded reputation as a dominant foreign currency trader in 2007.

In the December settlement, Deutsche Bank agreed to pay a $7.2 million to the Justice Department for its sale of toxic mortgage securities in the years leading up to the financial crises. As part of the settlement, the bank paid $3.1 billion in civil monetary penalties and $4.1 billion in consumer relief. The negotiations were followed by harsh plummet in the bank’s stock, leading many to wonder about Deutsche Bank’s stability as a financial player.

These concerns were amplified when, on January 30, Deutsche Bank agreed to pay a $425 million fine to New York State’s main financial regulator for its involvement in a Russian money-laundering scheme. The New York State Department of Financial Services found that between 2011 and 2015 Deutsche Bank executives in Moscow and London helped Wealthy Russians send money overseas by disguising these illicit funds as stock trades. Though this scandal, dubbed the “Russian Mirror Trading Scheme,” is smaller in scale than the mortgage crisis payments, it reinforced Deutsche Bank’s emerging reputation as a financial institution accustomed to skirting regulations to amplify profits.

Despite the difficult last few years, John Cyan, Deutsche Bank’s chief executive, is optimistic that it is on a “path to creating a simpler, stronger and growing bank.” Cyan specifically touts the merging of its commercial and investment bank as an opportunity to expand its competitive environment by availing itself to more than 20 million customers.

Following a Year of Scandal, Deutsche Bank Looks toward the Future (PDF)

U.S. Banks Plan to Use Cellphones as a Substitute for ATM Cards

By Aamir Virani, J.D. Candidate 2019 | Posted on

Major banks like J.P. Morgan Chase, Bank of America, and Wells Fargo all have plans to roll out thousands of ATM machines this year that will be accessible using cellphone technology alone.

These new machines give customers the ability to obtain cash or make deposits without the use of a traditional ATM card. Customers who are logged into their mobile banking apps on their phones can use N.F.C. (Near Field Communication) chip readers on the new machines in order to gain access to their accounts. J.P. Morgan Chase has already introduced this technology in several hundred ATM machines in four test cities across the United States. Bank of America already provides this service to users who have compatible phones and certain wallet apps, but they plan to bring this cardless option to all of their machines by the end of 2017.

With the introduction of this new technology comes both security advantages and disadvantages. One distinct benefit of using mobile technology instead of ATM cards will be a reduction in “skimming”, which is the process by which a scammer steals card information in order to access an individual’s bank account. However, this new innovation still has its flaws. A Chase customer recently had $2900 stolen from her account when a thief obtained her login credentials, installed the Chase app on his phone, and used it to access her account at one of Chase’s new machines. Chase claimed it used this incident to strengthen its security measures.

In general, there is agreement that mobile ATM transactions are much faster than traditional card transactions. One bank even noted that its average transaction time dropped from 45 seconds to 10 seconds.

Many experts believe that ATM cards will remain a part of our financial ecosystem, but to what extent remains to be seen.

U.S. Banks Plan to Use Cellphones as a Substitute for ATM Cards (PDF)

National Borders Create Barriers to Corporate Misconduct Investigations

By Camila Piedrahita Abello, J.D. Candidate 2019 | Posted on

On September 9, 2015, Deputy Attorney General Sally Q. Yates issued a memorandum outlining “six key steps” department attorneys must take in corporate investigations, particularly when handling misconduct. Among these steps, the memorandum made eligibility for any cooperation credit conditional on the corporation providing information that identified individuals in the organization responsible for the violations. Ms. Yates went on to explain the importance of “deter[ing] corporate misdeeds, hav[ing] a real impact on corporate culture and ensur[ing] that the public has confidence in our justice system.”

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U.S. Supreme Court Declined Review in Securities Class Action Lawsuit arising from the Financial Crisis

By Frederic Peeters, LL.M. Candidate 2017 | Posted on

Several big banks are fighting crisis-era financial lawsuits worth tens of billions of dollars.  These banks recently asked the Supreme Court to review a decision from the Court of Appeals for the Second Circuit, arguing that the regulators took too long to file their claims.  The case relates to the failure of Colonial Bank.  In August 2009, Colonial collapsed as a result of Residential Mortgage-Backed Securities (“RMBS”) purchases. As a result, the Federal Deposit Insurance Co. (“FDIC”) was appointed as a receiver.  In August 2012, the FDIC sued the banks that issued and underwrote these RMBS in 2007, arguing that they issued a series of false and misleading statements in the offering documents relating to the RMBS’s liquidity and investment quality, which constituted a violation of Sections 11 and 15 of the Securities Act of 1933.

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Wells Fargo Targets the Weak

By Camila Piedrahita Abello, J.D. Candidate 2019 | Posted on

On September 8, 2016, Wells Fargo agreed to pay $185 million in fines as a result of illegal banking practices its employees had engaged in for years. Since as early as 2005, Wells Fargo employees opened about two million unauthorized bank accounts and sent out countless unsolicited credit cards.

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Five Major U.S. Banks’ Living Wills Fail to Pass Regulatory Muster

By Myriam Denis, J.D. Candidate 2016 | Posted on

On April 13, 2016, the Federal Reserve and the Federal Deposit Insurance Corporation (FDIC) jointly announced that five major banks – JPMorgan Chase, Bank of America, State Street, Wells Fargo and Bank of New York Mellow – failed to fulfill an important regulatory requirement of the Dodd-Frank Act, the major piece of legislation introduced in 2010 by Congress following the 2008 debacle. The “living wills” provision of the Dodd-Frank Act demands that big banks provide regulators with carefully drafted plans for how they would deal with a potential bankruptcy. This ambitious section seeks to make it easier for bank regulators to oversee potential bankruptcies by providing an orderly method to avoid the kind of chaos that followed the Lehman Brothers’ bankruptcy. The current process requires banks to submit updated living wills every year. Whether living wills pass muster critically hinges on whether they are “credible.”

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Goldman Sachs Reaches $5 Billion Settlement with U.S. Department of Justice

By Taylor Arabian, J.D. Candidate 2016 | Posted on

The United States Department of Justice announced on Monday, April 11, that it had reached a settlement with Goldman Sachs Group, Inc. (“Goldman Sachs”) that would require the global investment banking firm to pay more than five billion dollars in penalties for its role in the housing bubble that many see as having precipitated the worldwide financial crisis that began nearly a decade ago.

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No Criminal Charges against Citibank Executives for Pre-Crisis RMBS Sales

By Vartika Jain, LL.M. Candidate 2016 | Posted on

Citigroup executives involved in the sale of subprime mortgage-backed securities are off the hook in the U.S. as authorities decided not to pursue any criminal charges against them. The acknowledgement came in a report issued by one of the agencies tasked with the Citigroup probe, the Federal Housing Finance Agency’s Office of Inspector General (FHFA OIG). The report marks the probe closed and outlines the investigation, the epicenter of which was Citibank’s sale and issuance practices with respect to subprime mortgage-backed securities in the 2006-2007 period.

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Wall Street Races to Secure FinTech Patents

By Ziqun Guo, J.D. Candidate 2018 | Posted on

America’s heavyweight financial institutions, including banks and payments networks, have started aggressively applying for patents at an unprecedented rate. In the past three years, they have snagged 1,192 patents, representing a 36 percent increase over the previous three years. Those patents include an incredible range of technology that runs the gamut from blockchain ledgers to mobile wallets and beyond, and this shift can be attributed to a revolution in the market for financial services. Digital financial service companies, now known as Financial Technology or “FinTech” startups, threaten to push banks out of the market if they can’t keep pace in the realm of innovation.

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