According to Moody’s, Dodd-Frank is the main culprit for its recent downgrade of four major United States banks’ credit ratings. On November 14, the credit rating agency released a report announcing that it lowered the credit ratings of Morgan Stanley, Goldman Sachs, JPMorgan, and Bank of New York Mellon by one notch. To explain, the agency pointed to the new framework implemented by the FDIC under Title II of the Dodd-Frank Act, which “reduce[s] the likelihood and predictability of systemic support” in the event of a bank holding company’s insolvency by shifting costs from the public sector to the private sector, increasing the risk of default.
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Summary of Selected Issues of the SEC Municipal Advisor Rule that Affect Broker-Dealers Intending to be Underwriters
Dodd Frank Act Definition of “Municipal Advisor”
A “municipal advisor” is a person (including a firm or an associated person) (but not including a municipal entity or an employee of a municipal entity) who (1) provides “advice” to “municipal entities” or “obligated persons” on the “issuance of municipal securities” or “municipal financial products,” or (2) undertakes a “solicitation of a municipal entity.”
On Tuesday, the Commodity Futures Trading Commission approved, by a 3-1 vote, a proposed rule on positions limits in commodities derivatives. The proposed rule reflects changes to an earlier rule on positions limits that was invalidated in 2012 by a Federal district court in the District of Columbia.
It is well known that Chair White and her staff have stressed that their immediate focus is on completing the mandatory rulemaking under the Dodd-Frank and JOBS Acts, but in a sign of possible things to come after that task, Chair White spoke to the National Association of Corporate Directors (NACD) about the risk of information overload in the disclosure companies provide to investors.
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Banking Law Fundamentals: “How Did We Get Here and Where Have We Gotten” – A Paradigm For Assessing the Future of Banking
Edward J. McAniff, one of the nation’s leading banking lawyers, shared his insights on navigating the banking regulatory landscape in a series of lectures at the Banking Law Fundamentals (BLF) seminar hosted by Berkeley Center for Law, Business and the Economy from September 25-27.
The lectures stemmed from a common notion that it is impossible to anticipate and recognize what consequences regulatory changes will have on the banking industry without looking through the prism of our past. Throughout the seminar McAniff convincingly and eloquently demonstrated that the only framework capable of explaining this complex and fascinating body of law is one that is built upon awareness of how the U.S. banking regulation came to be in its present confused state. The structure of regulation is then best understood as a reflection of the interplay between the nature of banking activities, themes underlying the American culture, and historical developments.
At the outset McAniff acknowledged that the astonishing complexity of rules governing banks, comprising the most intensive and extensive body of U.S. regulation, is in part due to the critical role that banks play in operating the economy. “Banks are central to the economy – they provide liquidity, transfer wealth immediately, act as intermediaries, the Fed uses them to distribute the national debt… Clearly there is no way to run a modern economy without a banking system.” However, while the significance of banks can justify the need for regulation of on their activities, themes prevalent in American history explain its illogical, internally inconsistent, fragmentized, and reactionary structure.
On September 23, 2013, the Berkeley Center for Law, Business and the Economy (BCLBE) hosted a lunchtime talk on banking law given by Wells Fargo & Company’s Chief Regulatory Counsel, John D. Wright. Wright’s talk was part of Banking Law Fundamentals, BCLBE’s comprehensive, 2-1/2 day introduction to banking law for attorneys, consultants, regulators, and bank professionals, hosted at UC Berkeley’s International House from September 23-25.
Wright presented an overview of post-Dodd Frank financial institutions’ “new normal,” characterized by a “highly operationalized, risk-averse, bureaucratized culture.” According to Wright, “the golden age for lawyers and consultants has finally dawned.”
Wright, who has worked with financial institutions for 25 years, described the major events that led to the current state of affairs. As an associate practicing securities and banking law at Brobeck, Phleger & Harrison in San Francisco, he often analyzed Wells Fargo’s commercial loan files. At that time, law firms were the primary directors of banks’ legal work.
Wright joined Crocker Bank in early 1980, at the beginning of the next 20 years’ deregulatory winds, which culminated in the Gramm-Leach-Bliley Act of 1999. The resulting consolidation among financial institutions greatly expanded the role of banking lawyers and sparked the growth of large in-house legal departments.
Turn of the millennium events such as “Y2K” and 9/11 further expanded the banking lawyer’s role into operations risk management. With this expansion came the breakdown of the former rigid separation between banks’ lawyers, compliance officers, and risk managers. Wright described the role of the chief regulatory counsel today as heavily focused on enterprise risk management, and consequently, as similar to a consultant’s role. At the same time, law firms representing financial institutions have moved away from strategic advice-giving, and toward the more specialized areas of litigation, regulatory enforcement, and transactional work.
By far the most significant recent change has been the passage of the Dodd-Frank Wall Street Reform and Consumer Protection Act. Read the rest of this entry »
FRB Issues Final Rule Establishing Annual Assessment Fees for Large Banking and Other Financial Companies
[Editor’s Note: The following post is authored by Goodwin Procter LLP]
The FRB issued a final rule (the “Final Rule”) establishing annual assessment fees intended to cover the costs of the FRB’s supervision and regulation of bank holding companies and savings and loan companies with $50 billion or more in total assets and nonbank financial companies designated by the Financial Stability Oversight Council as subject to supervision by the FRB because they could potentially pose a threat to U.S. financial stability (“Assessed Companies”). The Final Rule implements Section 318 of the Dodd-Frank Act, which directs the FRB to collect from Assessed Companies assessments, fees, and other charges equal to the total expenses that the FRB estimates are necessary or appropriate to carry out the FRB’s supervisory and regulatory responsibilities for Assessed Companies. Read the rest of this entry »
[Editor’s Note: The following update is authored by Davis Polk & Wardwell LLP]
On July 10, 2013, the SEC adopted amendments to the Regulation D and Rule 144A private-placement safe harbors, as mandated by the JOBS Act of 2012. The amendments, which will become effective on September 23, 2013, will eliminate the prohibition on widespread advertising and other forms of “general solicitation” or “general advertising” in private offerings under Rule 506 of Regulation D of the Securities Act of 1933 or under Rule 144A of the Securities Act of 1933, so long as all purchasers of the securities are reasonably believed to be accredited investors upon taking reasonable steps to verify as much (under Rule 506) or are reasonably believed to be qualified institutional buyers or “QIBs” (under Rule 144A). The amendments, however, did not extend the ability to engage in general solicitation to private placements that are not conducted in reliance on Rule 506 or Rule 144A, such as Section 4(a)(2) of the Securities Act of 1933. Read the rest of this entry »
SEC Eliminates the Ban on General Solicitation, and Disqualifies Participation by “Bad Actors,” in Certain Private Securities Offerings
[Editor's Note: The following post is authored by Arnold & Porter LLP]
On July 10, 2013, the Securities and Exchange Commission (SEC) adopted final rules (Final Rules) eliminating the ban on general solicitation and general advertising for private securities offerings under Rule 506 of Regulation D under the Securities Act (Regulation D) and Rule 144A under the Securities Act (Rule 144A). The Final Rules also make Rule 506 unavailable for offerings if the issuer or any related “covered person” is a “bad actor” (i.e., has engaged in a “disqualifying event”). The adoption of these rules by the SEC was required under Section 201(a) of the Jumpstart Our Business Startups Act (JOBS Act) and Section 926 of the Dodd- Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act), respectively. The Final Rules will go into effect 60 days after publication in the Federal Register. Read the rest of this entry »
Yesterday a hearing was held to determine whether the House and Senate Agriculture committees will re-authorize the Commodity Futures Trading Commission (CFTC). The hearing is one in a series of reauthorization hearings scheduled to occur every five years. The biggest complaint is that the CFTC is behind schedule on implementing Dodd-Frank rules. Specifically, commissioners cited problems with the issuance of no-action letters and the confusion surrounding swap dealer definitions. Read the rest of this entry »