Theme: Over the next two weeks, we will explore the regulation of financial conglomerates, with a special emphasis on the new regulatory requirements imposed by the Dodd-Frank Act of 2010.

We will begin this section of the class by discussing the current structure of the US banking sector and its place within the US financial services sector and by noting the different sizes and different business models of the current large complex financial conglomerate as they exist today. Once we have a firm grounding in the current business reality and using history as our guide, we will discuss the development of the holding company structure in the US which has led to a need for a supervisory focus on the relationships among the holding company, the insured depository institution, and the non-banking affiliates. (See A Structural View of U.S. Bank Holding Companies.) We will then cover limits on transfers of cash and assets from the insured bank to affiliated parties (Sections 23A and 23B of the Federal Reserve Act), the source of strength doctrine and cross-guarantees. Here the key readings are Saule Omarova’s article and Paul Lee’s article, both of which you should read quickly. We will compare the US organizational structure to the traditional continental European model where commercial banks are universal and there is no holding company. In preparation for this class, you may find it helpful to review Elizabeth Brown’s article assigned for Class Nine in Week Three. Readings: Avraham, et al., A Structural View of U.S. Bank Holding Companies, FRBNY Economic Policy Review, July 2012 Saule Omarova, From Gramm-Leach-Bliley to Dodd-Frank: The Unfulfilled Promise of Section 23A of the Federal Reserve Act, 89 N.C. L.Rev. 102 (2011) Paul L. Lee, The Source-of-Strength Doctrine: Revered and Revisited – Part II, 129 Banking Law Journal 867 (2012)

In today's class we will discuss the Dodd Frank enhanced prudential regulation for systemically important financial conglomerates (other than the increased capital which has been discussed previously). We will begin with a discussion of the Federal Reserve Board rules for enhanced prudential oversight of systemically important bank holding companies (US headquartered only). We will then turn to the Dodd-Frank Act procedures for the designation of other systemically important financial institutions, a topic we previewed in Class One with the FSOC order regarding Prudential Insurance. After reviewing that order, take a look at the Research Paper on the Designation of Insurance Companies as Systemically Important to get a sense of the FSOC procedures. We will then compare designation standards of the Financial Stability Board, which are summarized in the FSB’s Consultative Document. If time permits, we will also touch open the ongoing debate over the designation of elements of the asset management industry as systemically important. In this regard, compare the Executive Summary of the Report of the Office of Financial Research (September 2013) with BlackRock piece by Barbara Novick (March 2014). Readings: Davis Polk, Post Dodd-Frank Bank Regulation by Size Davis Polk, U.S. Bank Holding Companies: Overview of Dodd-Frank Enhanced Prudential Standards (Feb. 24, 2014) Research Paper on the Designation of Insurance Companies as Systemically Important (December 2013) Financial Stability Board, Consultative Document: Assessment Methodologies for Identifying Non-Bank Non-Insurer Global Systemically Important Financial Institutions (Jan. 2014) Office of Financial Research, Asset Management and Financial Stability (Sept. 2013) Barbara Novick, Systemic Risk and Asset Management: Improving the Financial Ecosystem for All Market Participants (March 2014)

We will spend this class looking at activities restrictions imposed by the Dodd-Frank Act, using the proprietary trading portions of the Volcker Rule as a case study. To refresh your memory of traditional activities restrictions at the holding company level, skim the Research Memorandum on Commodities Activities. As an introduction to the Volcker Rule, you may find it helpful to start with these two press accounts: Volcker Rule, Once Simple, Now Boggles, New York Times (Oct. 21, 2011); and Volcker Defends His ‘Rule’ From Critics, Financial Times (Oct. 26, 2011). We will then take a look at the Volcker Rule itself, asking whether the rules constitutes an activities restriction or an implied structural restrain on financial holding companies. How does the rule compare with the Glass-Steagall Act. Read the Davis Polk slides comparing Volcker, Glass-Steagall, Vickers and Liikanen changes, the statutory text of the Volcker Rule (focusing on the proprietary trading sections only) as well the Sullivan & Cromwell Memorandum on the final Volcker Rule regulations and the Guynn & Kenadjian article on Volcker, Vickers, Liikanen, Glass Steagall and Narrow Banking.

Orderly Liquidation Authority (OLA) and the New World. In today’s class, we will explore the changes that the Dodd-Frank Act made to the FDIC’s authority over insolvent financial conglomerates. To introduce the subject, read the Randall Guynn's article: Are Bailouts Inevitable? The Bipartisan Policy Center paper titled Too Big to Fail: The Path to a Solution (pages 1-35) provides a good introduction to the FDIC's current thinking on single point of entry (SPOE). OLA has been criticized by both the right and the left for enshrining taxpayer bailouts and by the bankruptcy bar for its lack of due process. We will discuss the reasoning behind all of these perspectives in class. Students should also review the research paper on Living Wills posted on the Course iSite and skim the October 2014 Bipartisan Policy Center paper on Bank Breakup Arguments. Readings: Randall D. Guynn, Are Bailouts Inevitable?, 29 Yale J. Reg. 121 (2012) Bipartisan Policy Center, The Big Bank Theory: Breaking Down the Breakup Arguments (Oct. 2014) Failing to End “Too Big to Fail”: An Assessment of the Dodd-Frank Act Four Years Later (July 2014) Research Paper on Living Wills (to be posted on iSite)

Corporate Governance. We will spend this class looking at the changes in corporate governance as applied to banks and to large complex financial institutions both historically and since the financial crisis. The first two readings, articles by members of the NY Fed staff and by Professor Brian Cheffins of Cambridge University, offer some helpful background on the subject. We will then turn to a pair of resent speeches by Fed Governor Daniel Tarullo and NY Fed President Dudley, after which will take up a new deck of Davis Polk visual slides on the OCC's recent heightened prudential guidelines. And then review the New York State statute on directors’ duties. Students should also review the research paper on Fed independence on the course iSite. Readings: Hamid Mehran et al., Corporate Governance and Banks: What Have We Learned from the Financial Crisis (June 2011) Brian Cheffins, The Corporate Governance Movement, Banks and the Financial Crisis (Dec. 2013) Daniel Tarullo, Corporate Governance and Prudential Regulation (June 9, 2014) William Dudley, Enhancing Financial Stability by Improving Culture in the Financial Services Industry (Oct. 20, 2014) DavisPolk, Risk Governance: Visual Memorandum on Guidelines Adopted by the OCC (Nov. 7, 2014) N.Y. Banking Law Section 7015 Research Paper on Fed Independence (to be posted on iSite)

In today's class we will explore the business models and regulation of foreign banks in the United States, and compare with the principle of national treatment embedded in the International Banking Act of 1978 (IBA) with the concepts of substituted compliance and passporting as they later developed in the European Union. We will discuss the recent imposition of an intermediate holding company on the largest foreign banks operating in this country. Readings include, Foreign Banks in the US: A Primer, an analysis of the IBA by the Richmond Fed in 1979 and a speech by Governor Tarullo in 2014. You should also review two research papers for this class: one on extraterritorial application of the Volcker Rule and the second the second on the emergence of selective substituted compliance as a regulatory strategy for dealing with cross-border swaps. Both should be posted on the course iSite.