Category: Banking & Finance

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Is Your Bank Account Safe? Financial Institutions’ Bad Faith Malpractice

By Claire Chung

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This Note argues that a poisonous culture in the banking industry, to indiscriminately profit by cutting legal and ethical corners, led to the Wells Fargo scandal in 2016. Wells Fargo had wrongfully profited by incentivizing its employees to meet sales quotas by creating phony accounts using confidential customer information without consent. Although the employees acted alone, liability lies on the employer, Wells Fargo, under the theory of respondeat superior. In doing so, Wells Fargo violated unfair and deceptive financial practices law. Also the scandal raised the issue of whether the mandatory arbitration clause in a financial product purchase agreement should be enforced against consumers or not. This Note proposes a multifaceted solution to address the pandemic of bad faith banking practices.… Read the rest

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Lack of Legal Duty to Fill Vacancies on the United States Export-Import Bank’s Board of Directors May Destroy Ex-Im Bank

By Michal Nowicki

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This Note examines whether the President of the United States has a statutory duty to nominate candidates to fill vacancies on the United States Export-Import Bank’s five-person Board of Directors. With only two of the five seats occupied, Ex-Im Bank’s Board of Directors cannot currently approve the financing of large export credit transactions, because at least three board members must be present to establish quorum for conducting official business. As a result, the Bank’s power is severely limited. Although this Note argues that President Trump is not legally obligated to fill Ex-Im Bank board vacancies, it offers an argument the Bank’s supporters can use to persuade President Trump to restore the agency to its full potential.… Read the rest

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The Agency Problem of Lehman Brothers’ Board of Directors

By: Young Ah Kim

Introduction

Lehman Brothers is often cited as an example of corporate governance failure largely due to poor oversight by the board.[1] Richard Fuld, former CEO of Lehman Brothers during its bankruptcy in 2008, still does not agree with this general evaluation. Seven years later in 2015, he gave a speech at a conference in New York.[2] Fuld spoke about Lehman’s risk management, as quoted in The Wall Street Journal: “Regardless of what you heard about Lehman’s risk management, we had 27,000 risk managers because they all had a piece of the firm.”[3] The problem, however, remains that Lehman’s employees owned a very small portion of the company stock, which did not solve its agency problem.

Lehman Brothers had a high-leverage, high-risk-taking business strategy supported by limited equity.[4] For instance, it took its leverage ratio up to 30 times its equity.[5]… Read the rest

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A Fiduciary Duty Requirement for Financial Professionals is Great, in Theory

By: Joe Zender

On April 6, the Department of Labor released a new regulation pertaining to the duties owed by financial advisors to their clients.[1] The new regulation, which is scheduled to go into effect on January 1, 2018, transforms fundamental aspects of the financial services industry.[2]  The new rule, called a fiduciary duty rule, requires financial professionals to act in the best interest of their clients.[3] While a savvy investor or an ethical advisor may have already required this as part of their relationships, many retail investors do not know the ramifications of such a duty. The new rule forces this type of duty.  Opponents of the rule argue that the new regulation will increase costs across the financial services industry, which could force small budget investors out of the advising market, during a time when they could use it. At the same time, those who … Read the rest

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Third-Party Litigation Finance: Leveling The Playing Field or Overstepping Ethical Boundaries?

By: Alexander Karl

A teacher of mine once described capitalism as taking piles of money and making them grow. While this is a somewhat elementary definition, the idea is on the right track. The American economy proudly boasts of its capitalist background. We paint a picture (though some say it’s wrongly painted) in which an immigrant with no money to his name can strike it rich with a little sweat and elbow grease. Capitalism and its general principles resonate with many Americans to this day as they are finding new unique ways to watch their piles of money grow. As many Americans have figured out, there is no better way to grow your money than investments. When pondering the investments prevalent within today’s society a few come to mind such as stocks, bonds, real estate, and gold. However, capitalists are always on the cutting edge of new investment trends and … Read the rest

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Two Sides of the Same [Bit]coin: Why Regulating Bitcoin Works in Its Favor

By: Amanda Maslar

          The reality of the most notorious virtual currency is that it is only a matter of time before it comes under the purview of a regulatory body.  Bitcoin is a cryptocurrency that exists entirely online; it is partially anonymous and affords its users rigorous privacy protections in their transactions.[i]  Its online presence is shrouded in mystery, aided by the fact that no one knows exactly who introduced the world to the illustrious Bitcoin.[ii]

            Bitcoin is not pegged to any currency, and its value is dictated entirely by demand.[iii]  Central banks around the world have used monetary policy tools to manipulate the money supply and the value of currency throughout history; the Federal Reserve, however, has in recent years engaged in aggressive policies to stabilize the U.S. dollar, which has concerned some who fear inflation and a devaluation of the U.S. currency.[iv]  Many people … Read the rest

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Facebook IPO Proves More Transparency Needed for Investors, but Will Twitter Listen?

In light of its growing popularity as a social media tool with more than 200 million active users, [i]Twitter announced in September of 2013 that it was ready to launch an Initial Public Offering (IPO). Twitter, which has never turned a profit in its seven years in existence, had originally set a price range of $17 to $20 per share for the IPO.[ii] Despite these earlier projections, Twitter announced in a tweet on November 6, 2013 that it priced its stock at $26 per share due to high initial demand for its IPO. [iii]

 Twitter’s stock market debut is also “likely to be scrutinized [from the beginning] since Facebook went public in May 2012 and promptly flopped.” [iv] Given this enhanced level of investor interest, Twitter decided it would avail itself of the fast track IPO process which is part of the Jumpstart Our Business Startups Act (JOBS Act). … Read the rest

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Shadow banking: Help is on the Way

 

Despite being recognized as a primary culprit of the financial crisis, shadow banking has continued to flourish. According to the Financial Stability Board (FSB), shadow banking has grown since the onset of the crisis from $62 trillion in 2007 to $67 trillion[i]. Fortunately, the FSB plans to release regulatory recommendations by the end of the year. This article will summarize the risks inherent with shadow banking, the effects of the Dodd-Frank Act, and possible reforms designed to mitigate these risks and any inadequacies of Dodd-Frank.


Shadow banking refers to largely unregulated bank-like activities performed outside of the traditional banking sector by non-bank financial institutions (NBFI). NBFI include: hedge funds, investment banks, money market funds, and other devices that aggregate and hold financial assets. Banks engage in financial intermediation between savers and lenders by using deposits to finance long-term assets, including loans and mortgages. This conversion of short-term … Read the rest

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Take Your Business Elsewhere: Why the Federal Corporate Income Tax is Destroying our Economy

The national debt of the United States now exceeds $16 trillion. Current estimates suggest that the present year’s deficit will amount to approximately $1.1 trillion, a negligible improvement upon 2011’s $1.3 trillion deficit. The present unemployment rate is one of the highest of the past sixty years, with approximately eight percent of Americans unable to find work. Unless significant changes are made in both federal income and expenditure, the economic livelihood of future generations is bleak.

Searching high and low for a remedy to our nation’s economic woes, many politicians and businessmen have set their sights on the federal corporate income tax. Hoping to simultaneously create jobs and stimulate our economy, individuals from across party lines, including Barack Obama and Mitt Romney, have suggested that we lessen the federal taxation of corporate profits. A small group, though, including individuals such as Gary Johnson and Ron Paul, are of the
… Read the rest
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Bluebird: Walmart Wants To Be Your “Every Day Low Price” Bank.

 

Frustrated with your bank’s surprise fees and minute interest rates? Shop at Walmart? You may find a solution to your woes in an unusual but convenient location: on the “Every Day Low Price” stores’ shelves. Bluebird, the child of a Walmart and American Express partnership, will offer a prepaid, easy-to-refill, low fee debit account and card that aims to attract disgruntled bank customers and millions of “underbanked” households. The product is poised to change the banking industry (to the dismay of banks) by offering traditional banking services from a non-bank, but consumer activists have voiced concern over the legitimacy of Walmart’s foray into banking and the potential for abuse in the relatively unregulated area of prepaid card accounts.

 

In its quest to be America’s neighborhood “everything” store, Walmart has taken aim at the personal banking industry. The “underbanked” market, populated by “customers who use few, if any, … Read the rest