Legal Commentary

On the Revisions to Basel III?s Liquidity Requirements

Posted on January 23, 2013
So the Basel Committee finally released its revisions to the all-important Liquidity Coverage Ratio (LCR), which I have written about at length. Most of the press coverage has painted the revisions as weakening the LCR, and it?s true that some of the revisions weaken the LCR, but after delving into the document, I find more of a mixed bag...

Volcker Rule: ?Market Making? and the SEC

Posted on December 03, 2012
And I?m back! Here?s hoping that my prolonged absence has not cost me my entire audience. The last substantive update on the Volcker Rule came from the WSJ a few weeks ago. The article contains an interesting ? though not altogether surprising ? nugget, which highlights one of the key issues in the proposed Volcker Rule...

JPMorgan and the Volcker Rule's Hedging Exemption

Posted on May 20, 2012
In the wake of JPMorgan?s $2 billion trading loss, there?s been lots of talk about whether ?portfolio hedging? is allowed under the Volcker Rule, and whether that should be changed. As I wrote in my previous post, the statutory language of the Volcker Rule very clearly allows portfolio hedging, and anyone who claims otherwise is lying to you...

The Volcker Rule and ?Portfolio Hedging,? Yet Again

Posted on April 20, 2012
Seriously, Jesse Eisinger needs to stop writing about the Volcker Rule, because he has absolutely no idea what he?s talking about. His latest article makes a number of egregious errors, but I want to focus on the one that?s most demonstrably untrue. Eisinger writes: (emphasis mine) The Congressional authors of the Volcker Rule worried about this very thing [i...

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The Volcker Rule and 'Flipping the Presumption'

Posted on March 03, 2012
In my previous post on the Volcker Rule, I admittedly glossed over the real issue in my second prediction. This issue is important, but it?s also reasonably complex (way too complex for some people, I suspect), and it requires some context and explanation to fully appreciate...

CDS Auction Settlements Following a Restructuring

Posted on March 01, 2012
Since there's evidently a substantial amount of confusion surrounding Greece CDS procedures, I thought it would be helpful to post this:

Volcker Rule Predictions

Posted on February 20, 2012
The due date for comment letters on the proposed Volcker Rule has now passed. The comment letters are interesting for a variety of reasons. (I had the benefit of seeing draft versions of several of the comment letters, and I?ll just say that I?m amazed at the level of convergence they were able to achieve between the industry letters ? both substantively and stylistically...

Repeat After Me: ?Systemically Important? ? TBTF

Posted on January 19, 2012
Earlier this week, Joe Nocera wrote a puff piece on Karen Petrou of Federal Financial Analytics. In the piece, Nocera and Petrou repeat a frequently-heard ? but nevertheless exceedingly superficial ? argument that has always bothered me. From Nocera?s NYT column: [Petrou] also points to a contradiction in the way the Too Big to Fail institutions are being dealt with...

Equities and Basel III's Liquidity Requirements

Posted on December 07, 2011
Last night, Bloomberg reported that the Basel Committee was considering revising Basel III's new Liquidity Coverage Ratio (LCR) to allow banks to use equities in their liquidity pools. This would be a relatively major change, and one which I consider ill-advised...

On the Leaked Volcker Rule

Posted on October 10, 2011
The American Banker leaked part of a draft of the regulators? proposed Volcker Rule (pdf) last week, which has caused quite a stir. The first thing to note is that the American Banker did not leak the most important part: the text of the proposed rule...

Ron Suskind?s ?Confidence Men?: A Terrible Book

Posted on September 29, 2011
No need to beat around the bush here: Ron Suskind?s ?Confidence Men? is a terrible book. It?s not even remotely accurate, and contains surprisingly little new, original information. The fundamental problem is that Suskind is stunningly ignorant of basic macroeconomics, financial markets, the financial crisis, and financial regulations ? basically, all the subjects you?d need to understand in order to write a competent book about the Obama administration?s economic team...

The Volcker Rule Isn?t Being Diluted

Posted on September 25, 2011
I want to smack down this particular bit of misinformation before the regulators release their proposed Volcker Rule, so that they don?t get hammered for absolutely no reason. Last week, the WSJ ran a story claiming that a draft version of the regulators? proposed Volcker Rule would substantially weaken the original law, because the draft rule defines ?hedging? on a ?portfolio basis...

9/11

Posted on September 11, 2011
Since everyone is telling their 9/11 stories today, I guess I'll share mine. Having experienced the terrorist attacks on 9/11 up close, this day always bring back terrible memories. My wife and I were both working in the Financial District, and my wife's office was very, very close to the Twin Towers...

The DC Circuit?s Proxy Access Decision

Posted on August 22, 2011
As you?ve probably heard, the DC Circuit struck down the SEC?s proxy access rule last month, in Business Roundtable and Chamber of Commerce v. SEC. The three-judge panel held that the SEC?s proxy access rule was ?arbitrary and capricious? because the SEC failed ?adequately to assess the economic effects of a new rule...

On S&P, Downgrades, and Idiots

Posted on August 08, 2011
This is not going to be one of those posts that laments S&P?s decision to downgrade the US, but then says that S&P was probably right about our oh-so-dysfunctional political system. No, S&P was flat-out wrong ? no caveats. They are, to put it very bluntly, idiots, and they deserve every bit of opprobrium coming their way...

Should House Dems Support the Debt Limit Deal?

Posted on July 31, 2011
I?m torn on this one. By any objective measure, the deal is really, really bad public policy. And the one thing that really scares me about failing to reach a deal ? defaulting on Treasuries, which would be beyond catastrophic ? has been taken off the table by the Treasury, which said that it will prioritize interest payments...

Dodd-Frank: One Year Later

Posted on July 21, 2011
For Dodd-Frank?s one-year anniversary, I did an interview with Mike Konczal on how the first year went. You can read the interview here. Unlike the vast majority of commentators who have been talking about Dodd-Frank this week, I?ve been following the rulemaking process very closely (as regular readers know), and I have some positive things to say...

"Wall Street" Has No Sway Over the Tea Party Freshmen

Posted on July 17, 2011
Dean Baker has a column in the Guardian (via Mark Thoma) arguing that: The idea that Republicans in congress were going to force big cuts in the country?s most important programs ? social security, medicare, and medicaid ? by taking Wall Street hostage with the debt ceiling is absurd...

Obama and the ?Grand Bargain?

Posted on July 11, 2011
What are we to make of Obama?s ?grand bargain?? My initial reaction to the news that Obama was putting Social Security and Medicare cuts on the table was despair. What was/is the White House thinking? Obviously, no one outside the White House knows for sure, but I think I have a pretty good idea...

Collateral Transformation Services: What Could Possibly Go Wrong?

Posted on July 05, 2011
Risk has an interesting article ($) on the plans by some dealers to offer ?collateral transformation? services to derivatives end-users. Requiring most derivatives to be cleared means that end-users will have to post daily variation margin to the clearinghouse (or ?CCP?)...

SIFIs and Capitalism

Posted on June 29, 2011
Thomas Hoenig garnered a bunch of headlines the other day for, as usual, making a provocative and hyperbolic statement about financial reform. Discussing the concept of systemically important financial institutions (known as SIFIs), Hoenig said: ?I suggest that the problem with SIFIs is they are fundamentally inconsistent with capitalism...

Capitol Capitalist

Posted on June 26, 2011
Sorry I haven?t been able to post much lately; work has been very busy, and I?ve been on the road quite a bit. In the meantime, though, I urge everyone to check out Capitol Capitalist, a new blog on financial regulation by Sara Hanks. Hanks is a longtime securities lawyer, and also served as the General Counsel of the Congressional Oversight Panel (which was created to oversee TARP, and was led by Elizabeth Warren)...

Deathbed Designations

Posted on May 14, 2011
One of the biggest issues outstanding in financial reform is which institutions the Financial Stability Oversight Committee (FSOC) will deem ?systemically important,? and thus subject to all the enhanced Title I regulations. These systemically important financial institutions, known as SIFIs, will presumably be subject to the new resolution authority rather than the bankruptcy code ? although for some reason SIFIs aren?t automatically subject to the resolution authority, a problem which I pointed out within hours of the Treasury releasing its initial legislative language back in 2009...

Palin vs. Wall Street

Posted on May 14, 2011
Josh Green has a good article in the Atlantic Monthly about Sarah Palin?s tenure as governor of Alaska. Near the end, Green wonders what would have happened if, after the collapse of Lehman Brothers, Palin had led the anti-Wall Street charge: What if history had written a different ending? What if she had tried to do for the nation what she did for Alaska? The possibility is tantalizing and not hard to imagine...

Don?t Bring a Knife to a Gunfight, Lehman Resolution Edition

Posted on May 13, 2011
Not wanting to waste too much more time dealing with someone who is either unable or unwilling to understand the issues, I?ll confine myself to the worst mistakes in Yves Smith?s latest post. She?s really grasping at straws at this point. ?The FDIC showing up on site and digging through records runs the very real risk of kicking off an even faster response than the Bear rumors did...

Neil Barofsky, Future Politician

Posted on March 30, 2011
Neil Barofsky hates the Treasury Department. From what I understand, the feeling is more than mutual. Barofsky is back today with an op-ed in the NYT, which is ironic, because one of Treasury's main criticisms is that he's a relentless grandstander. (He is...

From the Horse's Mouth: AIG's Mistake Explained

Posted on March 28, 2011
Here's an interesting exchange with an AIG executive from the FCIC interviews. As I explained a while ago, what really killed AIG were the terms of its CDS contracts on subprime CDOs and RMBS ? specifically, the contracts included Credit Support Annexes (CSAs) which required AIG to post collateral based on the mark-to-market value of the underlying CDOs...

Interchange Under Attack

Posted on March 27, 2011
In general, I'm not concerned about the GOP's efforts to roll back financial reform. House Republicans can pass all the bills they want; they're not going to get a vote in the Senate. However, the one aspect of financial reform that I think could legitimately be rolled back is interchange (a...

Goldman, the Volcker Rule, and Principal Investing

Posted on March 23, 2011
A report by BofA banking analyst Guy Moszkowski got a lot of attention yesterday, because Moszkowski claimed in the report that Goldman had a more aggressive interpretation of the Volcker Rule with regard to principal investing than the rest of the market...

Financial Market Utilities, Dodd-Frank, and JPMorgan

Posted on March 21, 2011
Cate Long and FinanceObserver have asked me to do a post on Title VIII of Dodd-Frank, so here goes. Title VIII is something of a wildcard in financial reform. It establishes a regulatory and supervisory regime for what it calls ?financial market utilities? (FMUs), which are basically entities that clear and settle payments, securities, or other financial transactions between financial institutions...

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