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Financial regulatory bill agreed on

Dick Taffe — Fri, 25 Jun 2010 20:45:40 +0000

House and Senate conferees finally worked out a compromise bill aimed at reshaping financial regulations to avoid another Crash of ’08, with a final vote set for next week and President Obama expected to sign it by July 4th. As expected: many winners and losers. One controversial provision gives the SEC authority to require stockbrokers to protect their clients’ interest when recommending investments, potentially subjecting brokers to the same fiduciary duty as financial advisers. Law Professor Tamar Frankel, author of “Trust and Honesty: America’s Business Culture at a Crossroad” and authority on securities law, says it’s about time.

“It offers a chance and a challenge for the SEC to become the leader that it used to be from the 1940s until about 1980. It is a chance to bring about a far more reliable financial system and to refocus on productivity rather than betting.”

Contact Tamar Frankel, 617-353-3773, tfrankel@bu.edu

Financial regulatory reform showdown

Dick Taffe — Mon, 21 Jun 2010 17:37:05 +0000

House and Senate conferees hope to wrap up this week the final version of financial regulatory reform legislation to send to President Obama, with chairmen Barney Frank and Chris Dodd delicately trying to compromises without losing votes for the overall package. What do about the trading of derivatives – the complex financial packages which helped sink the economy – remains up in the air. Law Professor Cornelius Hurley, director of the Morin Center for Banking and Financial Law and a former counsel to the Fed Board of Governors, says the proposal currently in the Senate version but objected to by both the House negotiators and the White House, wouldn’t be the best for taxpayers fearing another bailout but would be better than nothing.

“If derivatives trading is such a socially useful and profitable activity ($23 billion in revenue among the five banks that dominate the market) why can’t it exist outside of bank holding companies? The answer to the question is that it could exist in a different, nonbank setting, but, without the backing of the taxpayers, the activity would have to shed its casino-like features.”

Contact Cornelius Hurley, 617-353-5427, ckhurley@bu.edu

Arizona fighting the 14th Amendment

Dick Taffe — Wed, 16 Jun 2010 21:49:13 +0000

On the heels of passing a controversial law involving screening illegal immigrants, the Arizona legislature is considering a bill that would deny citizenship to children of illegal immigrants, despite the 14th Amendment to the U.S. Constitution that specifically grants naturalized citizenship to such children. Law Professor Susan Akram, an authority on immigration law, says getting such a law into constitutionally shape would mean having to amend the U.S. Constitution — which requires a two-thirds majority of both houses and approval by three-quarters of the states.

“Although Arizona’s effort to restrict the guarantees or benefits of birthright citizenship is by no means the first effort of its kind — and not likely to be the last — it has a very slim chance of passing constitutional muster.”

Contact Susan Akram, 617-358-3060, smakram@bu.edu

The FDIC’s deposit-insurance limit

Dick Taffe — Wed, 16 Jun 2010 20:24:08 +0000

Congressional negotiators working out difference between the House and Senate financial reform bills are hammering out compromises right and left. One would permanently (and retroactively to January 2008) move from $100,000 to $250,000 the deposit insurance on individual bank accounts. Law Professor Cornelius Hurley, director of the Morin Center for Banking and Financial Law and a former counsel to the Fed Board of Governors, doesn’t think the raised limit is a good idea.

“Permanently raising the federal deposit insurance ceiling from $100,000 to $250,000 when the Federal Deposit Insurance Fund is over $20 billion in the red is irresponsible. By raising taxpayer-funded deposit insurance coverage … it seems the [banking] lobbyists’ messages are getting through loud and clear.”

Contact Cornelius Hurley, 617-353-5427, ckhurley@bu.edu

Congress eyes credit-rating agencies

Dick Taffe — Wed, 02 Jun 2010 21:00:54 +0000

The Congressionally sponsored bipartisan Financial Crisis Inquiry Commission now has cast its eyes on the credit-rating agencies and the impact they may have had on the Great Crash of 2008. Law Professor Elizabeth Nowicki, a veteran attorney from both Wall Street and the Securities and Exchange Commission, says the agencies are both hopelessly plagued by conflicts and in a position to undermine the very stability of the capital markets.

Nowicki: “Today’s hearings, then, will serve only as a political tool to emphasize the need for a dramatic response to the financial crisis.”

Meantime, School of Management master lecturer Mark Williams, a former Federal Reserve Bank examiner and author of “Uncontrolled Risk” about the fall of Lehman Brothers, says that while the rating agencies weren’t the main cause of the credit crisis, but they left the gate open and let the market and its participants behave in a more destructive manner.

Williams: “Meaningful financial reform will require that rating firms devise compensation plans that reward for high rating standards and provide penalties for intentional ratings manipulation.”

Contact Elizabeth Nowicki, 518-867-5355, enowicki@bu.edu; or Mark Williams, 617-358-2789, williams@bu.edu

Israeli flotilla raid condemned

Dick Taffe — Tue, 01 Jun 2010 22:49:11 +0000

After the UN Security Council condemned Israel’s open-seas raid on a flotilla headed with humanitarian aid to Gaza, Israel says the 600-plus activists it arrested are being freed and expelled from the country. Law Professor Robert Sloane, an authority on international law, says Israel violated a very basic customary norm of international law: the freedom of the high seas.

“Had Israel waited for the vessels to enter Israeli waters, or at least what’s known as the ‘contiguous zone,’ then it arguably could have seized the vessels to enforce its blockade and prevent what it might characterize as smuggling in violation of Israeli law.”

Contact Robert Sloane, 617-358-4633, rdsloane@bu.edu

Morgan Stanley new Fed target

Dick Taffe — Wed, 12 May 2010 21:16:18 +0000

Wall Street investment bank Morgan Stanley reportedly is being investigated by federal authorities to see if it misled investors about mortage-derivatives deals it helped design and sometimes bet against. This is on the heels of the Securities and Exchange Commission charging Goldman Sachs with securities fraud involving similar collateralized debt obligations or CDOs. Law Professor Elizabeth Nowicki, a former SEC attorney and Wall Street lawyer, says this suggests Morgan Stanley might end up in the same position as Goldman is in.

“The federal government is now making clear that they will take the aggressive watchdog actions they have recently been chastised for not taking over the past two years. The bigger question is what other banks can expect a phone call from the SEC or the DoJ.”

Contact Elizabeth Nowicki, 518-867-5355, enowicki@bu.edu

FDIC floats bank-reform proposals

Dick Taffe — Tue, 11 May 2010 22:43:12 +0000

The Federal Deposit Insurance Corp. is proposing that the top 40 U.S. banks — with assets totaling $8.3 trillion — submit “living wills” to show how they could be split off from parent companies and wound down. In parallel with Congressional reform efforts, the FDIC also is proposing that those selling securitiezed assets retain 5% of the risk on those assets. Law Professor Cornelius Hurley, director of the Morin Center for Banking and Financial Law and a former counsel to the Fed Board of Governors, says the FDIC’s proposal preempt several sister regulatory agencies.

“If the FDIC was attempting to make the case for federal regulatory consolidation, its ill-timed proposals hit the mark.”

Contact Cornelius Hurley, 617-353-5427, ckhurley@bu.edu

SEC probes stock-market plunge

Dick Taffe — Mon, 10 May 2010 16:49:19 +0000

Heads of the major stock exchanges were summoned to Washington by federal regulators to try to help figure out what caused last week’s computerized sell-off the shot the Dow Jones Industrial Average down 1,000 points in a matter of minutes. Law Professor Elizabeth Nowicki, a former Securities and Exchange Commission attorney and Wall Street lawyer, said the incident was similar to the ‘Black Monday’ crash in 1987, which the markets survived.

“The vehement suggestion that the SEC should adopt forthwith market circuit breakers for all markets is premature, given that liquidity is needed to some degree to help markets self-correct, even if short-term volatility is unnerving.”

Contact Elizabeth Nowicki, 518-867-5355, enowicki@bu.edu