Latham & Watkins Discusses CFTC No-Action Relief on IBOR Transition

On August 31, 2020, three divisions of the US Commodity Futures Trading Commission (CFTC) issued revised no-action letters providing additional relief to swap dealers (SDs), end users, and other market participants from registration requirements; business conduct standards; uncleared swap margin requirements; mandatory clearing; and trade execution requirements as a result of the looming discontinuation of the London Interbank Offered Rate (LIBOR) and other interbank offered rates (IBORs) and the transition to risk-free rates (RFRs). The relief came at the request of the Alternative Reference Rates Committee (ARRC), the group of private-market participants convened by the Federal Reserve Board and the … Read more

Morrison & Foerster Discusses Publicly Traded Public Benefit Corporations

In 2013, Delaware passed legislation adopting a new corporate form, the public benefit corporation (PBC), with a view to allowing directors of for-profit corporations to take actions not just in pursuit of stockholder returns, but also with the “[intent] to produce a public benefit or benefits and to operate in a responsible and sustainable manner.” [1] Over the past few years, thousands of social ventures, as well as more traditional companies, have incorporated as PBCs, with one study reporting 295 venture-backed PBCs as having raised a combined $2.5 billion from 2013 to 2019. This is in part due to decisions … Read more

How Managers’ Ability to Gather Information Can Affect the Value of Conservative Accounting

Academics and practitioners, including lawyers, emphasize the importance of conservative accounting to lenders and corporate boards, allowing them to intervene and take corrective actions at an early stage. However, conservative accounting may also increase the risk of false alarms and prompt excessive interventions. In light of this downside, the overwhelming and in many cases unconditional support that conservative accounting often receives is puzzling.

We aim to reconcile the support for conservatism with the concern for false alarms by showing that managers’ ability to gather additional evidence following accounting reports changes the balance between the benefits and costs of conservative accounting. … Read more

Fed Governor Brainard Offers an Update on Digital Currencies

It is a pleasure to participate in San Francisco’s Innovation Office Hours. The Federal Reserve Bank of San Francisco is a leader of our engagement with the tech community. And the Federal Reserve’s Innovation Office Hours serve as an important forum to engage on innovation in the financial system with financial institutions, fintechs, technology companies, nonprofits, and other stakeholders. We have benefited from learning about the work you are doing to promote healthy innovation in financial services and payments. This event covered a number of important topics, including regulatory technology, blockchain, cybersecurity, and digital banking. The breadth of topics and … Read more

Public Disclosure and Consumer Financial Protection

The 2008 financial crisis triggered a surge of interest in regulating consumer financial markets. The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 created the Consumer Financial Protection Bureau (CFPB) to safeguard consumer interests. Since 2011, the CFPB has accepted complaints about the financial products and services provided by the depository institutions under its jurisdiction. Since 2013, the CFPB has released a complaint database to the public. The data include individual complaints, their submission dates, complainants’ 5-digit ZIP Codes, types of products and issues (without narratives), and the names and responses of the banks involved.

The purpose of … Read more

Skadden Discusses CFTC’s Final Cross-Border Swaps Rule

On July 23, 2020, the Commodity Futures Trading Commission (CFTC or Commission) voted 3-2 to approve a final rule (Final Rule) on the cross-border application of certain swap provisions under the Commodity Exchange Act (CEA).1 The Final Rule represents a significant rulemaking implementing Title VII of the Dodd-Frank Act.

Chairman Heath P. Tarbert said the Final Rule “provides critically needed regulatory certainty to the global swaps markets” and “properly balances protection of our national interests with appropriate deference to international counterparts.”2


In 2010, the Dodd-Frank Act amended the CEA to create a new regulatory framework for swaps. Congress added … Read more

ResTech: Innovative Technologies for Crisis Resolution

The increasing use of financial technologies (FinTech) by market participants has fostered a discussion among public authorities on the use of similar technologies for regulatory (RegTech) and supervisory (SupTech) purposes. Innovative technologies could also be applied to crisis resolution: the use of one or more resolution tools by a public authority to manage the failure of banks and financial firms in an orderly way. However, the features and market dynamics of resolution differ from those of RegTech and SupTech: There is little market incentive for the private sector to foster innovation in the area of crisis resolution. That is mainly … Read more

Exequity Discusses S&P 500 Companies’ Use of “Relative Total Shareholder Return”

The economic consequences of the COVID-19 pandemic have upended countless budgets for 2020 and rendered long-term forecasts speculative at best. By now, most companies providing financial guidance have withdrawn it. Uncertainty abounds.

All the while, investors, proxy advisors, and other constituencies continue to demand pay-for-performance. Media and critics of executive compensation are culling through filings in search of companies taking actions that could be perceived as friendly to executives at the expense of stakeholders that may run counter to a strict pay-for-performance philosophy. Common modifications that may be taken in the current market to set more reasonable financial goals for … Read more

Bank-Fintech Partnerships, Outsourcing Arrangements, and the Case for a Mentorship Regime

Fintech firms, once perceived as disruptors of the traditional banking industry, are now increasingly seen as attractive partners for established financial institutions. Partnership arrangements between banks and new financial technology startups have therefore mushroomed over the last several years. Such partnership agreements, which come in different forms and contexts, are usually advantageous for both sides: Banks may ordinarily suffer from legacy issues and cumbersome internal processes, and therefore benefit from fintech firms’ superior technology to develop new business ideas. At the same time, a bank’s broad customer base may allow a startup to benefit at an earlier stage from economies … Read more

Regulations as Automatic Stabilizers During Crises

Even in the best of times, corporate leaders gripe about the cost of government regulations. An average hedge fund spends more than 7 percent of its total operating costs on various forms of compliance.[1] For the banking industry, compliance  expenses are estimated at $270 billion –10 percent of operating costs.[2]  In my paper, “Regulations as Automatic Stabilizers,” I show that regulations have a critical economic benefit: More heavily regulated companies fare significantly better during extreme economic downturns. In other words, regulations are automatic stabilizers during economic downturns. What is more, regulations do not negatively affect firm performance during … Read more

Financial Markets and News About the Coronavirus

From its February 2020 peak to a March 2020 trough, the S&P 500 index fell 34 percent.  This fall was accompanied by extreme volatility, at a level last seen during the global financial crisis.  Invariably the selloff was accompanied by media speculation about the onset of another Great Depression.  However, the incidence of COVID-19 cases during most of this selloff was not yet at extreme levels, as evidenced by Exhibit 1 below.

Exhibit 1: S&P 500 index and incidence of global COVID-19 case counts, as reported by the Johns Hopkins COVID-19 dashboard.  Source: Bloomberg.

So what drove the precipitous market … Read more

Paul Weiss Discusses Transition from LIBOR to Alternative Reference Rates by End of 2021

Notwithstanding the impact of COVID-19 on the global economy and market participants, from the perspective of regulators, working groups and industry leaders, the anticipated cessation of the London Interbank Offered Rate (“LIBOR”) remains the end of calendar year 2021.[1] Indeed, the UK Financial Conduct Authority (“FCA”) has confirmed this 2021 deadline.[2] The Bank of England (“BoE”) has explained that that the global market volatility caused by COVID-19 highlights the need to shift away from LIBOR, pointing out that LIBOR rates rose as central bank policy rates fell, reflecting low activity for the LIBOR market.[3]

While the worldwide … Read more

Fed Vice Chair Quarles Speaks on Post-Pandemic Reforms and Too-Big-to-Fail

Good afternoon ladies and gentlemen. I would like to thank the Exchequer Club for hosting this event, and I look forward to future events taking us back to the luncheon discussions at the Mayflower Hotel, as has been the club’s tradition now for over half a century.

This afternoon I will consider the challenges that the outbreak of the COVID-19 virus and, especially, the containment measures taken by many governments in response (which together I will call the “COVID event”) pose for the financial system and international cooperation on financial stability. I will do so in the context of a

Read more

Stress Testing During a Pandemic

Yesterday, the Federal Reserve announced the results of its annual stress tests. This was the first time since 2009 that the Fed had stress tested large banks during a period of systemic distress. In a new paper, Stress Testing During Times of War, forthcoming in The Stress Test Handbook (Cambridge University Press) and available here, I explain why stress testing after a negative shock is both more important and more fraught than stress testing during times of peace. I further address why time-limited government backstops may be critical to ensuring the tests are robust, relevant and disclosed – … Read more

Cleary Gottlieb Discusses OCC’s Proposed Updates to Digital Banking, Bank Activity Rules

On June 4, the Office of the Comptroller of the Currency published a Proposal to update rules applicable to the activities and operations of national banks and Federal savings associations.  Comments on the Proposal are due August 3.  Simultaneously with the Proposal, the OCC released an Advance Notice of Proposed Rulemaking requesting comment on expanding, updating and improving the regulations and interpretations on digital and electronic activities.  The ANPR is quite open-ended, and we anticipate that comments are likely to take many forms, from direct responses to white papers and research analyses.  Comments on the ANPR are also requested … Read more

Cleary Gottlieb Discusses Fed’s Main Street Lending Program

On May 28, the Federal Reserve published the structural and operational details of the Main Street Lending Program, releasing program documentation and updated FAQs.  These documents are the final remaining pieces before the facilities open.  Last week’s publication brings the Federal Reserve closer to a new frontier, where it will be able to lend against non-investment grade credits to small and mid-size nonfinancial corporates.  Depending on uptake by eligible Lenders and Borrowers, the Main Street Lending Program has the potential to be an important supplement to the Paycheck Protection Program in supporting sectors of the economy most affected by the … Read more

The Limits of the G20’s Debt Service Suspension Initiative

As of May 1, G20’s Debt Service Suspension Initiative (DSSI) for 76 International Development Association (IDA) countries and least developed countries (LDCs) has become operational. However, it remains unclear whether private-sector creditors will collaborate on such efforts for those countries, and the question on what to do about the much larger debts of low- and middle-income countries is still open.

On April 15, the G20 announced the DSSI, which is an eight-month official bilateral sovereign debt payment suspension if requested by World BankIDA countries and least developed countries (LDCs) that are current on their International Monetary Fund (IMF) and World … Read more

Which Companies Crowdfund?

The JOBS Act and Regulation Crowdfunding were intended to create a new and inclusive type of online capital market where all entrepreneurs, regardless of their physical location, gender, or anything else, can go directly to the public (the “crowd”) to raise capital for their early-stage startup companies.  Has it met this goal?

To answer this question, my research assistant and I created an original data set using every Form C (the official form that all crowdfunding issuers must file with the SEC) from 2016 to 2018 – roughly 1,500 filings in all.  Our results are reported in a recently published Read more

The Phenomenon of the Television Ad as Investment Tip

Amid the turbulence in stock markets, retail investors continue to look for investment ideas. With thousands of publicly-traded stocks available, many retail investors often resort to their recent personal experiences when deciding on which stocks to buy or sell. Maybe a surge in video conferencing or home deliveries will prompt them to invest in companies involved in those businesses. They could even be inspired by ads they see on TV.

In a recent paper, we find a predictable, recurring, and robust pattern between investor exposure to television commercials and subsequent retail stock trading. We find that, within 15 minutes of … Read more

Executive Override of Central Banks in the United States and the United Kingdom

What makes a central bank “independent?” As most central bank scholars and policy-makers would likely answer that question, “it depends” – it depends on the bank, the function it is performing, and the political-economy of the times.  Still, as complicated as the concept of central bank independence is, many experts could likely agree on at least one indicium of independence: a central bank’s legal freedom to make certain decisions free from executive branch interference – at least where certain of its core functions, like monetary policy, are concerned.

In a recent article, we compare the way that two different legal … Read more