How to Save Bank Resolution in the European Banking Union

The Single Resolution Mechanism (SRM) just enacted by the European Parliament will fail in its essential mission of managing the failure of a systemically important bank in a way that overcomes the fatal link between sovereigns and their banks. The SRM simply provides no strategy to avoid contagion from a bank failure because depositors and short-term creditors are not adequately protected, due to an insufficient resolution fund and the absence of a credible, centralized deposit insurance scheme.  If bank resolution is not a credible threat, then the Single Supervisory Mechanism of the European Banking Union will be a paper tiger.… Read more

PricewaterhouseCoopers discusses ten key points about the new supplementary leverage ratio

The following post comes to us from Dan Ryan, Financial Services Advisory Leader at PricewaterhouseCoopers LLP, and is based on a PwC publication.

On April 8, the US banking regulators finalized the Enhanced Supplementary Leverage Ratio (“ESLR”) and released a Notice of Proposed Rulemaking (“NPR”) to modify the exposure calculation (i.e., the denominator) of the underlying Supplementary Leverage Ratio (“SLR”). Although the SLR was issued as a final rule by the Fed and OCC in July 2013, the agencies re-opened it, which we had suggested as a possibility in our Regulatory Brief, Heightened Leverage Ratio: US regulators unveil next act Read more

The Marketplace of Ideas: Should the SEC change the rules on blockholder disclosure?

The CLS Blue Sky Blog presents Part II of the third installment of our series, “The Marketplace of Ideas.” Earlier installments on different topics are available here and hereThe intent is to present different perspectives on the same subject by two or more authors.

Today, the subject is how the SEC should respond to Dodd Frank’s invitation to rethink the disclosure of beneficial ownership under Section 13(d). We have asked a number of experts for their views.

In Part I of this installment, available here, we heard from Professors Ronald J. Gilson of Columbia Law School and … Read more

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The Truth About Shareholder Activism

The following comes to us from Paul C. Hilal, a Partner at Pershing Square Capital Management, a New York City-based hedge fund founded in 2004.

Is shareholder activism good for the world?

A simple question, and yet it’s the subject of intense debate.  Proponents say activists play a key role in the markets, shaking up entrenched interests and unlocking long-term value by acting as change agents.  Critics claim activism pumps up short term stock prices for the benefit of the activists at the expense of long term interests of companies and their shareholders.

Who’s right and what does that suggest … Read more

Our Debate on the Williams Act and Shareholder Activism: Takeaways for the SEC

Our Blog’s most recent Marketplace for Ideas series has considered whether the SEC should tighten its rules under the Williams Act, which now require that investors must disclose purchases of a 5% or greater stake in public companies within ten days of crossing the 5% level. This debate began in March 2011, when Wachtell, Lipton, Rosen and Katz first petitioned the SEC to reduce the disclosure window from ten days to one, and SEC Staff immediately signaled that they were indeed inclined to tighten the disclosure period. In response, Lucian Bebchuk and I filed a comment letter urging the SEC … Read more

PricewaterhouseCoopers discusses EU bonus cap

The following post comes to us from Dan Ryan, Financial Services Advisory Leader at PricewaterhouseCoopers LLP, and is based on a PwC publication.


On February 25th, the EU’s two legislative bodies, the European Parliament (EP) and the European Council (Council), agreed to restrict retail asset managers’ bonuses. After going back and forth during 2013, the two bodies settled their differences last month as part of the fifth iteration of the Undertakings for Collective Investments in Transferable Securities Directive (UCITS V). We expect UCITS V to be passed into law by both the EP and Council this spring, … Read more

Weil Gotshal discusses SEC Speaks 2014: Charting a New Course for Enforcement Efforts

This year’s “SEC Speaks” conference in Washington, D.C., was most notable for an obvious shift in the SEC’s enforcement priorities. Several significant issues and efforts that had been the subject of extensive discussion last year – including financial crisis and insider-trading cases and the task force devoted to new and structured products, among others – received little or no attention this year. On the other hand, several new initiatives received very substantial emphasis, including principally the Commission’s new efforts in the public company accounting and financial statements area, and in the microcap fraud area. SEC Chair Mary Jo White highlighted … Read more

Cadwalader discusses Revisions to the Securitisation Framework: Second Consultative Document published by the Basel Committee

The Basel Committee on Banking Supervision (the “Basel Committee”) has published a second Consultative Document containing revised proposals for the Basel securitisation framework (the “Revised Proposals”).[1] The Revised Proposals describe a revised set of approaches for determining the regulatory capital requirements in relation to securitisation exposures held in the banking book and include a draft standards text. Market participants will be taking a keen interest in these proposals, which are summarised below.


Under the securitisation framework established under Basel II,[2] banks are required to hold regulatory capital against all their securitisation exposures (including those arising from the provision of … Read more

Gibson Dunn discusses The Federal Reserve’s Section 165 Rule for Foreign Banks

On February 18th, the Board of Governors of the Federal Reserve System (Federal Reserve) voted unanimously to approve a final rule (Final Rule) implementing the enhanced prudential standards contained in Section 165 of the Dodd-Frank Act.  This Client Alert discusses the Final Rule as it applies to non-U.S. banks that are “foreign banking organizations” under the Federal Reserve’s regulations (FBOs).

As expected, the Final Rule breaks sharply from the Federal Reserve’s historical treatment of FBOs by requiring those FBOs with $50 billion or more in total global consolidated assets and $50 billion or more in total U.S. non-branch/agency assets (non-branch … Read more

Ralph Lauren, Transnational Bribery, and Voluntary Disclosure Under the Foreign Corrupt Practices Act: When is it Strategically Wise (or Not) to Self-Report FCPA Violations to the SEC?

The following post comes to us from Peter R. Reilly, Associate Professor of Law, Texas A&M School of Law and is based on his paper, “Ralph Lauren, Transnational Bribery, and Voluntary Disclosure Under the Foreign Corrupt Practices Act: When is it Strategically Wise (or Not) to Self-Report FCPA Violations to the SEC?” (5 Harvard Business Law Review __ (2014) (Forthcoming)).  The full paper is available here.

On April 22, 2013, the U.S. Securities and Exchange Commission (“SEC”) announced a non-prosecution agreement (“NPA”) with Ralph Lauren Corporation in connection with bribes paid to government officials in Argentina.  The SEC decided … Read more

Managing Regulatory Arbitrage: A Conflict of Laws Approach

The following comes to us from Annelise Riles, Jack G. Clarke Professor of Far East Legal Studies and Professor of Anthropology, Cornell Law School.

American International Group (AIG), the very name of this company screams out its US origins.  And yet, the traders within the UK subsidiary of this multinational insurance corporation, operating under a French banking license, were able to engage in risk-taking activities that were largely beyond the reach of US insurance and finance regulators.  When AIG’s London-based trades fell apart in 2008, the parent institution in the US—and hence the US taxpayers—found themselves on the hook at … Read more

Clifford Chance on Exemptions for Inter-Affiliate and Intragroup Transactions Under Dodd-Frank and EMIR

On January 16, 2014, Clifford Chance released a briefing, available  here, on exemptions for inter-affiliate and intragroup transactions under the U.S. Dodd-Frank Act and the European Market Infrastructure Regulation (“EMIR”).  Both impose obligations requiring the clearing and reporting of certain derivative transactions and the margining of uncleared trades. However, there are differences as to how the U.S. and the EU regimes apply to inter-affiliate or intragroup transactions.

Our briefing summarizes and compares the relevant U.S. Commodity Futures Trading Commission (“CFTC”) rules against the relevant E.U. rules.  It is not intended to be comprehensive or to provide legal advice.

The … Read more

Rise of IntercontinentalExchange and Implications of its Merger with NYSE Euronext

The following comes to us from Latoya C. Brown, a practicing attorney in Florida and a former intern at the US Securities & Exchange Commission. The views expressed herein are those of the author and not necessarily those of the Commission.

On November 8, 2013, NYSE Euronext (“NYSE”) announced the timeline for the completion of its acquisition by IntercontinentalExchange (“ICE”).  As discussed in my recent article, Rise of IntercontinentalExchange and Implications of its Merger with NYSE Euronext, the combination of these two companies exemplifies a trend toward the creation of mega-exchanges that permit electronic trading of broad groups of … Read more

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The Volcker Rule Prohibitions on Proprietary Trading: Considerations for Broker-Dealer Affiliates of Foreign Banking Organizations

The Volcker Rule imposes significant restrictions on “proprietary trading” by banking organizations and their affiliates. The purpose of this Memorandum is to discuss how these restrictions may impact broker-dealer affiliates of foreign banking organizations that conduct business in the United States or with U.S. customers. For an overview of the Volcker Rule, see A User’s Guide to the Volcker Rule, available here and for a discussion of the general impact of the Volcker Rule on foreign banking organizations, see The Volcker Rule: Impact of the Final Rule on Foreign Banking Organizations, available here.

Overview of the Restrictions

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Rules, Standards, and Complexity in the Cost Benefit Analysis of Capital Regulation

The following comes to us from Prasad Krishnamurthy, Assistant Professor of Law, U.C. Berkeley Law School.

The prudential regulation of banks by the federal banking agencies has traditionally been grounded in discretionary standards.  Recent calls for cost-benefit analysis of agency regulations have arisen, in part, from a deep skepticism toward broad grants of discretionary authority.  Under current law, the federal banking agencies are not required to give an explicit, efficiency-based justification for proposed regulations.

In my article “Rules, Standards, and Complexity in the Cost Benefit Analysis of Capital Regulation,”  which is forthcoming in Journal of Legal Studies for … Read more

Clifford Chance discusses new EU securitisation risk retention rules – redrawing the roadmap

The new EU regulatory capital regime came into force on 1 January 2014 and with it a recasting of the securitisation risk retention rules. To accompany these new rules, the European Banking Authority (EBA) published final draft regulatory technical standards (RTS) in December 2013. The RTS and the accompanying implementing technical standards (ITS) are expected to be adopted in the first half of 2014 after consideration by the EU Commission and together will form an integral part of the final securitisation risk retention rules.

In this briefing we set out the key differences between the final draft RTS/ITS and the … Read more

The Philosophies of Capital Requirements

The following remarks were delivered by Commissioner Daniel M. Gallagher of the U.S. Securities and Exchange Commission in Washington D.C. on January 15, 2014. 

Thank you, Sarah [Kelsey, Exchequer Club Secretary], for that introduction.  I’m very pleased to be here this afternoon.

Today, I’d like to talk about regulatory capital.  Given the usual reaction I get when I raise this subject, just to be safe, I’ve barred the exits!

In all seriousness, though, there’s been a great deal of attention paid to regulatory capital recently, including new Dodd-Frank requirements, Basel III implementation (or non-implementation) issues, and even bipartisan Congressional efforts … Read more

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Increasing Transparency, Consistency, and Fairness in Pre-Trial Bargaining Under the Foreign Corrupt Practices Act

The following comes to us from Peter Reilly, Associate Professor of Law, Texas A&M School of Law. 

Wal-Mart is one of the wealthiest and most powerful companies in the world.  And billionaire gambling magnate Sheldon Adelson is one of the wealthiest and most powerful individuals in the world.  So what do these two have in common besides wealth and power?  They are both being investigated for possible violations of the U.S. Foreign Corrupt Practices Act (“FCPA”), a federal law prohibiting the payment of bribes to foreign government officials to obtain (or retain) business.[1]  If either party is ultimately indicted, … Read more

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Shadow Banking: The Regulatory Landscape at the Dawn of 2014

In the wake of the 2008 crisis, it soon became apparent that the fault lines of the global financial system extended far beyond the regulated banking sector to the less regulated “shadow banking” sector.  Nonbank financial entities including (but not limited to) money market funds, special purpose vehicles, insurance companies, and asset management firms, engaged in activities analogous to traditional bank deposit taking and lending, such as securities lending, repurchase agreements (“repos”), and securitization, yet were not subject to similar prudential regulations.  Failures at these institutions, which led to cascading failures throughout the financial system, prompted financial regulators to reevaluate … Read more

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Shearman & Sterling discusses Basel III Framework: The Credit Valuation Adjustment (CVA) Charge for OTC Derivative Trades

The credit valuation adjustment charge in Basel III appears, at first glance, to be the preserve of quantitative analysts and the like. However, while complex, the CVA charge requires more widespread attention as it materially increases the required capital for OTC derivative trading activities and is driving significant change in that sector. The divergence between the US and EU approaches to the adoption of the CVA charge highlights how the Basel standards have been interpreted differently in this important area, creating uncertainty and opportunities for arbitrage. 

Two-thirds of counterparty credit losses in the financial crisis were suffered not as a

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