Economics

The Week in Review: Major Suits and Proposed Legislation

By Christopher Hammond, J.D. Candidate 2015 | Posted on

The director of the U.S. Consumer Financial Protection Bureau may be facing a challenge the constitutionality of his “recess appointment,” following a January 25 ruling by the D.C. Circuit Court of Appeals.  In that case, the court held three of President Obama’s appointments to the NLRB were unconstitutional.  The party challenging director Richard Cordray’s status would likely argue that the opinion applies to him as well, as he was appointed via the same process.  For more, see Bloomberg.

The Justice Department has sued Anheuser-Busch InBev in Washington D.C. district court, attempting to block the company’s proposed $20.1 billion merger with Modelo.  The head of the DOJ’s antitrust division, William J. Baer, said the deal would reduce competition in the American beer industry, as InBev would control 46 percent of the country’s annual sales.  “Even small price increases could lead to significant harm,” Baer said.  For more, see the NYTimes.

The Commodity Futures Trading Commission is drafting rules for “swaps,” under the directive of the Dodd-Frank financial markets overhaul.  The stakes are high, as the complex instruments account for eight-ninths of the derivatives market—and Wall Street banks have been jockeying to frame the proposals as too burdensome for their respective industries.  For more, see Reuters.

Capitol Hill may again take up a system of voluntary cybersecurity standards.  According to a new Senate Commerce Committee report, there is strong support among Fortune 500 companies.  U.S. Senator Jay Rockefeller (D., W.Va.) has spearheaded the effort, and his data suggests differing perspectives from industry leaders and the U.S. Chamber of Commerce.  Sen. Rockefeller hopes to pass a bill this year.  For more, see the Wall Street Journal.

The Week in Review: New Mortgage Rules and Citigroup’s Q4 Hit by Settlement

By Christopher Hammond, J.D. Candidate 2015 | Posted on

In an ongoing effort to protect homeowners facing foreclosure, the Consumer Financial Protection Bureau has issued new rules for mortgage servicers.  The rules, which won’t take effect until January 2014, include provisions requiring banks to consider and respond to loan modification applications submitted at least 37 days before a schedule foreclosure.  Similarly, servicers must inform borrows of alternatives to foreclosure and will not be able to begin foreclosure proceedings while homeowners are seeking a loan modification.  The rules also severely limit some of the lending practices (e.g. inflated up-front fees, interest-only payments, and high debt-to-income ratios) considered predatory by consumer groups. For more detail, see articles by WashPo and CNN.

Citigroup’s Q4 earnings report underperformed this morning – in large part due to its $1.29 billion in legal costs – and the company’s stock dropped 3.4% in early trading.  While most banks are still purging their balance sheets, there is worry that we may not have seen the end of these mortgage-crisis-era liabilities.  Citigroup’s CFO, John Gerspach, hinted on a Thursday conference call:  “I think that the entire industry is still looking at some additional settlements that are still yet to appear.”  For more, see NYTimes and Reuters.  [Bank of America’s Q4 was hit by settlements as well:  WSJ]

Saudi Arabia’s Real-Estate Finance Laws

By Maha Al-fozan, LL.M. Candidate 2013 | Posted on

In July 2012, Saudi Arabia witnessed the official launch of the real-estate finance industry as part of the country’s economic financial development plans.  To promote the local competition between banking and other financial sectors, and the economy’s overall global competitiveness, non-banking corporations may now finance real estate in Saudi Arabia.

The Real Estate Development Fund (“REDF”) is the country’s main provider of housing finance.  REDF was unable to meet the rapidly increasing demand, while other real estate financing was limited due to absence of a well-structured regulatory framework.  For example, the industry lacked effective land registries and foreclosure regulations for properties in default.  Individual real estate financing was done against the transfer of title deeds rather than as an official mortgage.  In addition, lenders have been conservative with their loan standards, resulting in a low mortgage penetration rates.

Making mortgages available to public will address the imbalances occurring in the market with supply twisted to the high end.  The new Saudi laws tackle the chronic shortage of home ownership, particularly in the affordable middle- and lower-end markets.  More financing opportunities are needed, even though additional time may be required for the market to safely adopt such laws.

These laws are tools to open safe and continuous investment channels.  They encourage national economy leaders to diversify income sources and create job opportunities and investments in the country.  They also satisfy growing demands for appropriate and safe housing offers.  These steps aim to develop mechanisms that preserve homeownership rights, while stimulating financial institutions to lend more frequently, reduce the cost of mortgage financing and provide differentiated products for multiple segments of society.

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BCLBE Symposium Recap: Unlocking Capital for Efficiency Improvements

By Christopher Hammond, J.D. Candidate 2015 | Posted on

Last Friday, October 5, 2012, the Berkeley Center for Law, Business and the Economy co-hosted a symposium in San Francisco, entitled:  “Where is the money?  Unlocking Capital for Real Estate Efficiency Improvements.”

The event included presentations from leaders in law, finance, energy, and policy—all addressing the lack of adequate funding models for energy efficient remodels and retrofits.  Panels throughout the day covered energy improvement risk from owners’ and lenders’ perspectives, underwriting challenges, recent technology improvements to fill critical data gaps, bond and secondary markets, and state and federal financing policies and initiatives.  United States Senator Ron Wyden, D-Oregon, and John Chiang, California’s State Controller, were in attendance.  This is the first in a series of posts that will summarize the event, its recommendations and forecasts. (more…)

Banking Supervision: Capital Conservatism

By By Vibhooti Malhotra, L.L.M Class of 2012 | Posted on

The broad supervisory standards and guidelines issued by the Basel Committee on Banking Supervision (‘the Committee’) have greatly influenced the manner in which Banks are organized in various jurisdictions. The Committee claims that the main culprit behind the current financial crisis is excessive leverage assumed by banks both on and off the balance sheet. The latest in the series of proposed changes propounded by the Committee is Basel III, which seeks to restructure banks like shock absorbers rather than transmitters of financial risk.

The Federal Reserve Bank (‘Federal Reserve’) has responded to Basel III by asking bank holding companies (‘BHCs’) to submit comprehensive capital plans over the next 24 months. It is noteworthy that BHCs are required to notify the Federal Reserve of any change in their capital structure under Section 224.5(b) of Regulation Y issued under section 5(b) of the Bank Holding Company Act of 1956. Basel III, which has been designed conservatively, creates a framework whereby banking companies are to maintain higher common equity ratios, institute tougher stress tests for liquidity, and enhance market discipline and disclosure, among other things. Furthermore, trading positions will be subject to more stringent review, as the Federal Reserve believes that such changes are in the spirit of financial reform initiated by the Dodd-Frank Act.

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Reactions Against Currency Manipulation: More Than A Chinese Whisper?

By By Vibhooti Malhotra, L.L.M Class of 2012 | Posted on

The trade balance between United States and China has been heavily in favor of the People’s Republic for a long time. An often-cited reason for this phenomenon is the de facto pegging of the Renminbi (‘RMB’) to the US Dollar. It is believed that the Chinese Government actively purchases American dollars with the aim of artificially undervaluing its own currency. The result of this exercise is that even cheaper Chinese goods reach the American markets.

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