Banking

Banks Leave it to Startups to Take the High Road in Providing Services to Dispensaries

By Sheila Salehpour, J.D. Candidate 2018 | Posted on

After legalization victories in Alaska, Oregon, Washington, Colorado, and the District of Columbia, the war on drugs (and marijuana in particular) may finally be losing its thunder in the Court of Public Opinion. Still, a pro-marijuana victory lap is premature with twenty-five states continuing to ban both recreational and medical marijuana use.

Even in states that have fully legalized marijuana, a new battle is underway: federally regulated banks, major credit card companies such as Visa and MasterCard, and electronic payment services such as PayPal have refused to process pot-related transactions. Possession or distribution of marijuana still violates federal law, so banks and financial services providers that support those activities are at risk of being prosecuted or sanctioned. As a result, startup companies such as Tokken, Hypur, and Kind Financial have stepped in to provide much-needed financial services to authorized dispensaries that have been forced into cash-only transactions.

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Judge Orders HSBC to Make Money-Laundering Report Public

By Kevin Jones, J.D. Candidate 2018 | Posted on

In December 2012, the Department of Justice filed to prosecute HSBC Bank for violating the Bank Secrecy Act, Emergency Economic Powers Act, and Trading with the Enemy Act. The Department of Justice’s investigation revealed significant evidence showing HSBC officers engaged in business protocol that allowed drug cartels in several different nations to launder money internationally. Before taking the case to trial, the Department of Justice agreed on a settlement with HSBC.

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Global Financial Policy Makers Push Closer to the End of “Too Big to Fail” Banking Era

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

An international group of financial policy makers, the Financial Stability Board (FSB), designed a framework seeking to keep 30 of the world’s biggest banks from becoming “too big to fail” and having to resort to taxpayers-backed bailouts in the event of a future financial crisis. The “too big to fail” conundrum refers to the government having to bail out big banks because letting them fail would inflict collateral damage too severe for the economy to recover.

The proposed rules would require these banks to maintain “capital buffers” capable of absorbing potential losses when a bank is failing, thus preventing the spreading of further pressure in the global banking system. Most of this buffer would come in the form of shareholders’ equity as well as long-term debt issued to investors. By making banks sell bonds explicitly exposed to losses, the risk would shift from the government to be borne by the banks’ investors, and taxpayer-funded bailouts would, in theory, no longer be necessary.

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Fed’s New Rule Aims To Stop “Too Big To Fail” Banks

By Xiaolin Ma, LL.M. Candidate 2016 | Posted on

On October 30, 2015, the Federal Reserve Board announced a new proposal to change banking requirements for certain banks. The proposal requires domestic global systemically important banks (GSIBs) and the U.S. operations of foreign GSIBs to meet a new long-term debt requirement, as well as a new “total loss-absorbing capacity,” or TLAC, requirement. Janet Yellen, the Federal Reserve chairwoman, said, “This is an important step toward ending the market perception that any banking firm is ‘too big to fail.”

“Too big to fail” refers to the notion that the government has to bail out the largest banks in economic catastrophes, since allowing them to fail would create a negative domino effect on the remainder of the economy. In the last financial crisis in 2008, the U.S. government dropped their oppositions to bailout soon after the Lehman Brothers collapsed and the global financial system was seriously affected. Such bailouts ultimately impose losses on the taxpayers rather than allocating responsibility for risky banking practices on the organizations themselves. Therefore, the post-crisis regulations, including but not limited to the Dodd-Frank Act, are aimed at making it safer to let a big bank die.

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All Cash Is Not Created Equal: Basel III’s Liquidity Coverage Ratio & its Effects

By Leke Badivuku, J.D. Candidate 2018 | Posted on

The banking industry, served with a cocktail of financial re-regulation and an anticipated interest rate increase, may be in for a headache.

The banking industry has gradually been adapting itself to the regulation regime introduced by Basel III, introduced after the 2008 Financial Crisis to account for its deficiency in focusing only on capital requirements. The older Basel II regime has been reformed to increase not only the levels of certain “tiers” of capital in capital requirements, but also to encapsulate two additional areas for regulation: liquidity and leverage. Leverage regulations are further set to change. Questions, however, arise as to whether liquidity regulation in this environment is the best time for financial re-regulation.

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Tough Law for Investment Banks in Delaware Courts

By Alan Parker, LLM Candidate 2016 | Posted on

Investment banks are having a rough time litigating in Delaware Courts, and the horizon does not look any clearer. As the presence of investment banks in major merger deals in US becomes almost mandatory, it is easy to observe an ever-growing number of disputes related to alleged conflicts of interests between the investment banks and the multiple parties involved in such transactions. These disputes are mostly resolved in Delaware courts, which are the main venues for merger disputes, as most of the publicly-traded companies are incorporated in such state.

One of the latest lawsuits discussing this kind of conflict of interests is In Re Zale Corporation Stockholders Litigation. As explained in this comprehensive article published by Prof. Steven Solomon, in this case Merrill Lynch (“ML”) was retained by the Board of Directors of Zale Corporation (“Zale”) to advise it on the latter’s buyout by Signet Jewelers Limited (“Signet”) in a $1.4 billion transaction. However, before being retained by Zale, ML pitched to advise Signet on the very same deal, and the former only disclosed that it had previously pitched Signet after the closing of the transaction. Zale accepted a price per share of $21.00, which represented a 41% premium, exactly within the price range suggested by ML’s pitch to Signet.

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Former Rabobank Traders Face First U.S. Libor Trial

By Kevin Castillo, J.D. Candidate 2017 | Posted on

On October 14, 2015, Anthony Allen and Anthony Conti, two London-based former Rabobank traders, were the first to stand trial for criminal charges in the U.S. for allegedly manipulating the London Interbank Offered Rate (Libor) to benefit their colleagues’ trading positions.

Libor is the average interest rate at which banks borrow from one another. It serves as a key benchmark for interest rates around the world, and is widely used as a reference rate for many financial contracts including mortgages, student loans, and other consumer lending products. Trillions of dollars in derivatives and other financial instruments are tied to Libor.  The benchmark rate is calculated as an average of daily bank submissions to the British Bankers’ Association (BBA).

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Capital Outflow from Emerging Markets, Role of IMF and Central Bankers

By Shodhan Babu, LLM Candidate, 2016 | Posted on

The understanding in conventional economics that the free flow of capital to developing countries results in the increase in investment rates has come under review by the International Monetary Fund. In the past year emerging-markets have seen a net outflow of one trillion dollars. Emerging markets faced a similar collapse in 2008 and 2009 when the huge influx in 2006 and 2007 was followed by huge outflows. As a result of these outflows, financial instability in emerging countries has become more apparent as the value of the local currency drops drastically against the dollar. In turn, both the price of imports is rising substantially and the value of the debt in dollars is rising to unsustainable levels.

The reasons for the outflow is the prospect of the Federal Reserve raising interest rates from near zero percent for the first time in about a decade. The excess supply of oil has also resulted in the price of oil dropping which has adversely affected countries such as Brazil, Russia and Venezuela, which depend on oil exports. The Federal Reserve has cited the health of the US economy as the reason to increase the rate of interest but has not taken any decision with regard to the extent or the time of the rate hike. This uncertainty has resulted in foreign investors taking out money from emerging economies to find safer places of investment. While most governments have passed reforms and cut down on their foreign borrowings and abandoned fixed exchange rates, they have been unable to prevent domestic companies from foreign borrowings.

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Controlling the Narrative: Bank of America’s Corporate Governance Controversy

By Shneur Wolvovsky, J.D. Candidate 2018 | Posted on

Recently, Bank of America announced that its CEO, Brian T. Moynihan, will be retaining the title of Chairman, along with the title of CEO. In 2009, during the fallout of the “great recession,” shareholders voted, by a slim 50.3% majority, to enact a bylaw preventing the combination of these two roles.

In 2014, the board repealed the bylaw, and elected Moynihan into both roles. Understandably, shareholders were not happy that Bank of America made the decision without a shareholder vote. To rectify the situation, Bank of America put the proposal up for a vote. On September 22, 2015, shareholders voted, with a 63% majority, to strike down the bylaw, and, thus, opening the way for Mr. Moynihan to fill both roles.

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RBS May Have to Pay $ 13 Billion in Latest FHFA Lawsuit

By Philip Wiseman, J.D. Candidate 2017 | Posted on

Royal Bank of Scotland Group, PLC (“RBS”) may have to pay $ 13 billion in restitution to settle allegations in that it misled investors in mortgage-backed securities. The U.S. Federal Housing Finance Agency (“FHFA”) alleged, in a lawsuit filed on Monday in the U.S. District Court for the District of Connecticut, that RBS overstated the ability of borrowers to repay their mortgage loans by using false and misleading information. Philippe Selendy, a lawyer with Quinn Emanuel, estimated a $ 13 billion potential judgment against RBS based on a previous judgment against RBS in a similar lawsuit filed by the FHFA in the U.S. District Court for the Southern District of New York. (more…)