Dodd-Frank

Dodd-Frank Liquidation Rules Should Not be Scrapped

By Sean Kiernan, J.D. Candidate 2020 | Posted on

The debate regarding how to effectively handle a failure of major financial institutions has reignited under the Trump Administration, prompting critical reaction from overseas regulators.  In April, President Trump ordered the Treasury Department to review current Dodd-Frank rules and determine if an improved bankruptcy process could be a better option. Some Congressional republicans agree that it is.

Under Dodd-Frank regulations, when a big bank fails, the FDIC will step in, unwind nonbank and other financials firms integral to it, and set up a fund, the Orderly Liquidation Authority, to pay for the cost. It would initially borrow from the Treasury Department and recover the funds by charging the bank.

Foreign regulators have threatened to impose higher capital requirements on overseas subsidiaries of American banks if the Dodd-Frank rules are scrapped.

Potential legislation should prevent panic and lack of liquidity throughout the entire American and overseas financial system. Given the FDIC’s ability to coordinate responses to multiple failing banks, Dodd Frank is the superior option. Replacing Dodd Frank bankruptcy rules with a revised bankruptcy process could mean bankruptcy judges would be assigned to one specific case and could not cross coordinate with each other.

Bankruptcy judges do not have the legal mandate, prior experience, nor the incentive necessary to maintain the stability of the financial system as a whole. Their legal responsibility is to adjudicate creditor’s claims against the bank, rather than minimize debilitating effects on the entire economy.

While the bankruptcy process can serve as a useful additional channel for resolving failing financial institutions, wide scale crisis demands regulatory authority to manage it. An outright replacement of the Orderly Liquidation Authority, as administered by the F.D.I.C., could severely undermine our financial system’s stability.

Fortunately, Wall Street’s support for maintaining the liquidation authority, Secretary Steve Mnuchin’s pragmatic policy approach, and threats from overseas regulators make the odds of major deregulation bleak.

Dodd-Frank Liquidation Rules Should Not be Scrapped (PDF)

$150 Billion Spark Bipartisanship and Changes the Definition of “Worthy”

By Cremeithius Riggins, J.D. Candidate 2020 | Posted on

Congress and White House personnel are attempting to raise the financial threshold for a banking institution to be considered a “Systematically Important Financial Institution” (SIFI). On its face, this may seem to bring about banking reform; however, this would lead to a dramatic decrease in federal oversight and transparency. Considering the 2008 financial crisis, it is difficult to understand why any banking institution would not be considered systematically important. Nevertheless, the arguably arbitrary $50 billion threshold is taking center stage for what has already been a controversial Trump agenda.

At a time when there has been very little to celebrate about our government’s ability to work in a bipartisan manner, it appears that economics has forced the hand of some, including top White House economic advisor, Gary Cohen. Cohen was considered the “most important person” in Washington and on Wall Street. Cohen has been working with Democrats and Republicans to create significant changes in U.S. banking. On October 16, 2017, Cohen told the American Banking Association that the SIFI threshold needs to be raised from $50 billion to $200 billion. Is the U.S. banking system ready for a $150 million-dollar threshold increase only seven years after the $50 billion threshold was implemented?

Let’s put this into perspective. The 2008 financial crisis was the most stifling financial dilemma since the Great Depression. Several economic markets were crashing. The financial sector, credit industry, real estate market, and auto industry required federal funding to prevent economic turmoil. Many companies failed and many people lost their assets in the aftermath. It is also important to consider that the United States was not the only country that experienced the shock. The economic shock was so profound that it traveled across the Atlantic Ocean and devastated many European markets.

As a result of the financial crisis, Congress passed the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (Dodd-Frank Act). The Dodd-Frank Act was the culmination of studies conducted by the Commodity Futures Trading Commission (CFTC) and implemented an increase in regulation of swap market dealers. The current listing of swap dealers features more than 100 banking institutions considered SIFIs because they possess more than $50 billion dollars in assets. These banking institutions face greater federal oversight to increase transparency and lower risk to Americans. The $50 billion threshold was implemented to protect Americans; however, some economists attribute a negative impact to the threshold because it limits banks from lending to “worthy” customers. Does a $150 billion increase in the threshold change the definition of a worthy customer?

The worthy customer is as ambiguous and arbitrary as the slogan, “let banks be banks again,” used by President Trump to support the proposed $150 billion threshold increase. It is unclear exactly how many of the approximately one-hundred SIFIs would be free from governmental oversight. However, if letting banks be banks again means allowing institutions to engage in risky transactions to the detriment of Americans, it is as undesirable as waking up to the loss of all your fantasy stock.

$150 Billion Spark Bipartisanship and Changes the Definition of Worthy (PDF)

President Trump to Repeal Dodd-Frank

By Laura Tobon, LL.M. Candidate 2017 | Posted on

President Trump Scales Back Dodd-Frank

The Dodd-Frank Wall Street Reform and Consumer Protection Act, better known as the Dodd-Frank Act (the “Act”), is a financial reform package passed during the Obama administration as a response to the financial crisis of 2008. The Act, signed into law in 2010, re-designed Wall Street and the American financial industry. Banks and other financial institutions were forced to undergo a series of new regulatory exams and cut back on their lucrative, but illiquid, private equity and hedge fund investments. The Act created new governmental agencies and strategies to oversee mid-sized banks all the way up to multi-billion-dollar firms. Now, seven years after its enactment, President Donald Trump has pledged to significantly reduce and repeal the Act.

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Constitutional Challenges to Dodd-Frank

By Sarah Maneval, J.D. Candidate 2019 | Posted on

In 2016, the United States Courts of Appeals for the 10th Circuit and the D.C. Circuit declared provisions of the Dodd-Frank Act (Dodd-Frank) to be unconstitutional. Despite these holdings, financial regulation remains intact, at least for the moment.

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The Future of the Securities and Exchange Commission

By Nicole Saweres, J.D. Candidate 2019 | Posted on

Last week, U.S Securities and Exchange Commission Chairwoman, Mary Jo White, announced that she will resign at the end of President Barack Obama’s second term. While this comes as no surprise, there is collective worry as to who will be appointed next. If Hilary Clinton had won the presidency, the new SEC chair would likely have followed Mary Jo White’s footsteps and stayed firm on tough regulations and Wall Street enforcement.

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Court Removes Restriction on President’s Power to Remove CFPB Director

By Ope Osinubi, LL.M Candidate 2017 | Posted on

The D.C. Circuit recently held that that the Consumer Financial Protection Bureau (CFPB), an independent agency established by the Dodd Frank Act, was unconstitutionally structured because it was a single director agency whose director was only removable by the President for cause. The court resolved this unconstitutionality by striking down the “for cause” requirement that limited the President’s removal power, and severed it from the Act.

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Complying with Dodd-Frank: Complexities Arising from MetLife, Inc. v. FSOC

By Samantha Vega, J.D. Candidate 2018 | Posted on

The Financial Stability Oversight Council(FSOC) was established in the wake of the 2008 financial crisis in order to mitigate the risks and proffer stability to the U.S. financial system, but a U.S. District Court Judge’s ruling in MetLife, Inc. v. FSOC on March 30, 2016, is bound to complicate the FSOC’s ability to fulfill its mandate.

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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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Reinforcements Arrive for Whistleblowers in Financial Services

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

Whistleblowing is the ultimate form of burning your bridges. So it comes as no surprise that while whistleblowers are lauded for their courage and willingness to call out their companies for material financial wrongdoing, the celebration pales in comparison to the common risks they face from their current and future employers. Whistleblowers are often mishandled, ignored, and their allegations lead to job terminations and being blacklisted from other prospective companies in the industry. In response, a new group seeks to change this recurring story.

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Dodd-Frank Act Making Progress in Fight against Conflict Minerals

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

When Leonardo DiCaprio exposed the horror of African blood diamond wars as Danny Archer in the movie Blood Diamond, audiences began to think twice about from where that rock on their finger came. However, the next time you look at that text from your friend or call your dad wishing him a happy Father’s Day on your phone, remember that “conflict minerals” come in more shapes and sizes than just diamond. In fact, rebel groups in countries like the Democratic Republic of the Congo run mines that produce minerals used in the manufacture of consumer electronics. The proceeds fund continuing strife that’s killed up to 5 million people since 1998, more than any conflict since World War II.

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