We have all woken up on June 24th to the surprising news that the UK has voted to leave the European Union following a contentious referendum. The vote was very close, with 52% voting to leave and 48% voting to remain. Markets are reacting with volatility, as might be expected, and British Pound Sterling values have sunk overnight to a historic 30 year low against the dollar. To add to the turmoil, David Cameron, the British Prime Minister, has announced that he will be stepping down with his successor to be in place by the October Conservative Party conference.
That said, nothing is going to happen immediately. There is a very specific legal process for Brexit and the timeline is hardly swift. As the first step, the UK has to give notice to leave under Article 50 of the Lisbon Treaty. Based on the Prime Minister’s announcement this morning and questions surrounding who might lead the negotiations on the terms of the UK’s exit from the EU, that notice may not be given for many weeks, if not months. That notice is also just the commencement of the process. Once notice has been given, there is then a two year period in which to negotiate the terms of an exit Treaty.
Our colleagues have posted more details on the Brexit process on Bryan Cave’s EU & Competition blog.
On June 2, 2016, the CFPB released its long-awaited proposed regulations for payday loans, vehicle title and certain high-cost installment loans. Comments on the proposed rules must be received on or before September 14, 2016.
While most payday lenders would need to make significant changes to their products and practices under the proposed rules, the final rules could well be delayed though legal challenges in court. The scope of the proposal is extraordinary, even requiring a new credit reporting system, that would need to be built, to facilitate the ability-to-repay requirements of the proposal. The CFPB is relying on its authority under the Dodd-Frank UDAAP provisions to issue the rules, which is admittedly very broad, but even that might not be enough to support this ambitious proposal.
Nevertheless, because we cannot predict how courts would ultimately rule on the CFPB’s authority, it’s important to understand the proposed rules, prepare comments, and consider what business model changes might be needed. This article therefore summarizes the key provisions of the proposal.
Atlanta Partner Jonathan Hightower authored a BankThink piece in the American Banker on May 9, 2016 titled “Don’t Ignore This FDIC ‘Request for Comment.’” The discusses FDIC Financial Institution Letter FIL-32-2016, which asks for comment on the agency’s plan to explore the economic inclusion potential of mobile financial services.
Jonathan notes “banks’ focus on mobile products not only provides innovative benefits to underserved consumers who may lack branch access, but in light of regulators’ interest in the potential for mobile technology to expand economic inclusion, this focus may also help institutions overcome regulatory and community-based challenges to mergers.”
Click here to read the whole article.
Everyone has been in a movie theater when one of the actors approaches that door to the basement behind which strange noises are coming. They reach out to turn the knob and in unison the audience is thinking “Fool, haven’t you ever been to the movies? Don’t you know that the zombies or ghouls or some other equally disgusting creature are waiting for you behind that door. Don’t do it!” They of course open the door, blissfully unaware of the grisly fate waiting for them.
I get the same sort of feeling when I read about cybersecurity lapses at banks. Think about the following:
- “Someone dropped a thumb drive, I think I’ll just plug it into my computer at work and see what is on it. Surely nothing bad will happen. If nothing else, I’ll give it to one of my kids, they can use it on the home computer.”
- “My good friend, the one who sends me those emails asking me to pass them along to three of my closet friends, just sent me an email with an adorable cat video. I just love cat videos, I’ll open it on my computer at work and see what is on it. Surely nothing bad will happen. Doesn’t the FBI monitor the internet keeping us safe from bad people?”
- “Someone from a small European country that I have never heard of has sent me an email telling me that I might be the recipient of an inheritance. I always knew I was destined for better things in life, I’ll just click on the attachment and follow the instructions. Surely nothing bad will happen.”
- “My good customer Bob just sent me an email telling me that he is stuck in jail in South America. He needs me to wire money to post his bail. I didn’t know that Bob was traveling, I am pretty sure I just saw him in the bank a couple of days ago. I probably won’t try and call his house or wife or his cell phone to doublecheck, I’m sure his email is legitimate.”
If you were in the movie theater you’d be yelling out “Don’t do it!” If this were a movie you would see the green glowing blob patiently waiting to silently flow into the office computer. The blob just sits there though, waiting for the bank officer to hit that keystroke that opens the file. Now we see it watching as the person sits down at the computer and logs in, types in a password and initiates a wire transfer. The blob silently memorizes both the log in ID and the password. Weeks can go by as the suspense builds. The ominous music begins to swell in the background, we know that something is going to happen when as fast as lightning, the blob springs to life initiating wire transfers for tens of millions of dollars.
Two recent federal banking agency reports show very different pictures of the banking environment for community banks. In “Too Small to Succeed? – Community Banks in a New Regulatory Environment,” the Federal Reserve Bank of Dallas lays out the “apparent” rising regulatory burden confronting banks today. In contract, “Financial Performance and Management Structure of Small, Closely Held Banks,” published in the FDIC Quarterly, provides an empirical analysis of the success of closely held community banks in the FDIC Kansas City, Dallas and Chicago regions.
Lots of Community Banks Remain
As a reminder (which often seems forgotten in these discussions), the U.S. banking industry is still full of community banks. As of December 31, 2015 (the latest data available), there were 6,182 insured depository institutions in the United States (banks and thrifts, exclusive of credit unions). Only 107 of those institutions had more than $10 billion in assets; 595 institutions had between $1 and $10 billion, 3,792 had between $100 million and $1 billion, and 1,688 had less than $100 million in assets. (That’s not to say there isn’t significant concentration; the 110 institutions over $10 billion in assets hold over 81% of the assets in the industry.)
As indicated by the otherwise down-beat Federal Reserve paper, community banks (measured as having less than $10 billion in this analysis) have still maintained 55% of all small-business loans and 75% of all agricultural loans (and banks under $1 billion in total assets still provide 54% of all agricultural loans). As pointed out by the Federal Reserve paper, community banks accounted for 64% of the $4.6 trillion of total banking assets in 1992, but accounted for only 19% of $15.9 trillion of banking assets in 2015. While we have certainly had consolidation (both fewer banks, and larger banks), the community bank’s aggregate market ownership has, based on the Federal Reserve’s percentages and totals, actually gone up slightly from $2.9 trillion to $3.0 trillion.
On March 26, 2016, The Economist published an article entitled “The Problem with Profits.” That article discussed the high profitability of U.S. firms and why that seemingly positive fact is actually harmful to the overall economy, mainly because those profits are not being distributed for spending by shareholders or reinvested in business growth. As a result, the economy shrinks as resources flow to these firms and remain on their balance sheets. The focus of the article was a call for increased competition, but we believe we should focus on other conclusions.
While the article gives a tip of the cap to the impact of regulation generally and bank regulation specifically, banks represent the poster child for the negative impacts of limiting the ability of domestic firms to reinvest, an impact that is not directly reflected on balance sheets or income statements.
Since the onset of “new and improved” regulation stemming from Dodd-Frank and other regulatory reforms, we are seeing are clients use their resources to
- hold capital on their balance sheets, in some cases to protect against the anticipated negative impacts of an imaginary doomsday scenario;
- retain “high quality liquid assets;”
- invest in extraordinary compliance expertise and management systems; and
- fill buckets left empty from reduced interchange fees, the impact of stress testing, and higher costs to originate mortgage loans, among other things.
As an industry, we frequently point to decreased lending to small businesses and increased consolidation as the evils of increased regulation. In our view, however, the dampening of reinvestment initiatives is much more significant for the industry and for the economy in general.
This survey covers the legal principles governing Georgia businesses, their management and ownership. It catalogs decisions ruling on issues of corporate, limited liability company and partnership law, as well as transactions and litigation issues involving those entities, their governance and investments in them.
In 2015, there were a number of noteworthy decisions spanning a wide variety of corporate and business law issues. There were two significant decisions involving directors of corporations who simultaneously serve as trustees for trusts who hold a minority interest in the corporation – one dealing with liability issues, the other an insurance coverage dispute. Elsewhere, the Georgia Supreme Court issued an important opinion reaffirming the duty to read transactional documents and clarifying the circumstances under which that duty can be excused. The Supreme Court also addressed the availability of prejudgment interest in an action for specific performance of a stock purchase agreement, and the remedy of equitable partition in the context of a joint venture agreement. The Georgia Court of Appeals addressed two issues of first impression: the first dealing with a judgment creditor’s right to a charging order against an LLC member, the other dealing with an LLC’s right to recover for discomfort and annoyance in a nuisance action. The courts also dealt with interesting questions of jurisdiction and venue over corporate entities, including whether a foreign corporation or LLC with its corporate headquarters outside of Georgia can remove a tort action from the county in which it is filed to the county where its largest Georgia office is located.
Atlanta Senior Counsel Walter Moeling has been selected as a Lifetime Achievement Award recipient by The Fulton County Daily Report. Moeling received the honor for his considerable contributions to the legal profession in Georgia.
For nearly 50 years, Moeling has been with Bryan Cave and its predecessor firm in Atlanta, Powell Goldstein. Moeling has counseled financial institutions on corporate governance matters, operational and regulatory issues, capital and acquisition strategies, board disputes and dissident shareholders, as well as other strategic decisions.
He has been recognized by Who’s Who in America. He has been ranked since 1998 in Best Lawyers, including as Best Lawyers’ 2015 Atlanta Financial Services Regulation Law “Lawyer of the Year” and as one of the top 10 lawyers in the state. He also has been featured annually in Chambers USA since 2003.
In what goes for kicking the can down the road at the Supreme Court, the Court has evenly split on an appeal arising from the Eight Circuit Court of Appeals decision in Hawkins v. Community Bank of Raymore, 761 F3d 937 (CA8 2014) where that court found that the Federal Reserve had overstepped its bounds in adopting rules under the Equal Credit Opportunity Act to protect spousal guarantors. The case arose out of a series of loans in 2005 and 2008 made by the Bank—totaling more than $2,000,000—to PHC Development, LLC to fund the development of a residential subdivision. In connection with each loan and each modification, the principals of the LLC and their spouses (who had no interest in the LLC) executed personal guaranties in favor of Community to secure the loans.
The spouses defended themselves in an action brought by the bank on the basis that Community had required them to execute the guaranties solely because they were married to their respective husbands. They claimed that this requirement constituted discrimination against them on the basis of their marital status, in violation of the ECOA.. the federal district court concluded that the spouses were not “applicants” within the meaning of the ECOA and thus that Bank had not violated the ECOA by requiring them to execute the guaranties. Accordingly, the district court granted summary judgment in favor of the Bank on the ECOA claim and on the ECOA-based affirmative defense to the Bank’s breach-of-guaranty counterclaims.
We are pleased to announce that we are co-hosting a conference with Banks Street Partners and TTV Capital that will take a new look at the opportunities that exist for the banking community within the evolving Fintech landscape.
The agenda features prominent industry speakers regularly quoted in the media as foremost experts in the banking and fintech arenas. The morning keynote will be given by Chris Nichols, Chief Strategy Officer for CenterState Bank. Chris Nichols is an active bank investor, entrepreneur and lover of quantified banking. He currently serves on the Editorial Advisory Board of Banking Exchange and is co-founder of Wall&Main, Inc. a leading platform for crowdfunding. Prior to joining CenterState, Chris was CEO of the capital markets arm of Pacific Coast Bankers’ Bank and is the former author of the Banc Investment Daily.