Tag: EU

Shadow Resolutions as a “No-No” in a Sound Banking Union

Luca Enriques is Allen & Overy Professor of Corporate Law at Oxford University. The following post is based on a paper co-authored by Professor Enriques and Gerard Hertig.

Credit crisis related bank bailouts and resolutions have been actively debated over the past few years. By contrast, little attention has been paid to resolution procedures being generally circumvented when banks are getting insolvent in normal times.

In fact, supervisory leniency and political considerations often result in public officials incentivizing viable banks to acquire failing banks. In our book chapter Shadow resolutions as a no-no in a sound Banking Union, published in Financial Regulation: A Transatlantic Perspective 150-166 (Ester Faia et al. eds.), Cambridge University Press, 2015, we consider this a very unfortunate approach. It weakens supervision, distorts competition and, most importantly, gives resolution a bad name.


The New European Model Company Act

Marco Ventoruzzo is a comparative business law scholar with a joint appointment with the Pennsylvania State University, Dickinson School of Law and Bocconi University.

On September 10 and 11, 2015, at the annual conference of the European Company and Financial Law Review at WU University in Vienna, the “European Model Company Act” (“EMCA”) made its debut to an audience of corporate law professors, practitioners and judges, introduced to society by its drafters (your correspondent must disclose that, while not involved in the drafting of the EMCA, he is one of the editors of the journal co-organizing the event, and was one of the discussants of the document).


U.S. Enforcement Policy and Foreign Corporations

John F. Savarese is a partner in the Litigation Department of Wachtell, Lipton, Rosen & Katz. This post is based on a Wachtell Lipton firm memorandum by Mr. Savarese, David GruensteinRalph M. LeveneDavid B. Anders, and Lauren M. Kofke.

We recently reported on a new U.S. Department of Justice policy which expanded expectations for corporate cooperation in white collar investigations. While the initial wave of attention given to the DOJ pronouncement focused on U.S. companies, this new policy is also important for all companies with operations in the U.S. or whose activities otherwise bring them within the long arm of U.S. enforcement jurisdiction. Underscoring the relevance of these new policies to non-U.S. companies, Deputy Attorney General Yates noted in her remarks announcing the new policy that among “the challenges we face in pursuing financial fraud cases against individuals” is the fact that “since virtually all of these corporations operate worldwide, restrictive foreign data privacy laws and a limited ability to compel the testimony of witnesses abroad make it even more challenging to obtain the necessary evidence to bring individuals to justice.”


Remuneration in the Financial Services Industry 2015

Will Pearce is partner and Michael Sholem is European Counsel at Davis Polk LLP. This post is based on a Davis Polk client memorandum by Mr. Pearce, Mr. Sholem, Simon Witty, and Anne Cathrine Ingerslev. The complete publication, including footnotes, is available here. Related research from the Program on Corporate Governance includes Regulating Bankers’ Pay by Lucian Bebchuk and Holger Spamann (discussed on the Forum here), The Wages of Failure: Executive Compensation at Bear Stearns and Lehman 2000-2008 by Lucian Bebchuk, Alma Cohen, and Holger Spamann, and How to Fix Bankers’ Pay by Lucian Bebchuk.

The past year has seen the issue of financial sector pay continue to generate headlines. With the EU having put in place a complex web of overlapping law, regulation and guidance during 2013 and 2014, national regulators are faced with the task of interpreting these requirements and imposing them on a sometimes skeptical (if not openly hostile) financial services industry. This post aims to assist in navigating the European labyrinth by providing a snapshot of the four main European Directives that regulate remuneration:

  • Capital Requirements Directive IV (CRD IV);
  • Alternative Investment Fund Managers Directive (AIFMD);
  • Fifth instalment of the Undertakings for Collective Investment in Transferable Securities Directive (UCITS V); and
  • Markets in Financial Instruments Directive (MiFID).


UK Regulatory Proposals and Resolvability

Barnabas Reynolds is head of the global Financial Institutions Advisory & Financial Regulatory Group at Shearman & Sterling LLP. This post is based on a Shearman & Sterling client publication by Mr. Reynolds, Thomas DoneganReena Agrawal SahniJoel MossAzad AliTimothy J. Byrne, and Sylvia Favretto.

The Bank of England, the UK authority with powers to “resolve” failing banks, is consulting on how it might exercise its power of direction to remove impediments to resolvability. The Bank may require measures to be taken by a UK bank, building society or large investment firm to address a perceived obstacle to credible resolution. Concurrently, the Prudential Regulation Authority is proposing to impose a rule that would require a stay on termination or close-out of derivatives and certain other financial contracts to be contractually agreed by UK banks, building societies and investment firms with their non-EEA counterparties. This post discusses the proposed approaches by the UK regulators to ensuring that impediments to resolvability are removed, as well as certain cross-border implications.


England and Germany Limit Bank Resolution Obligations

Solomon J. Noh and Fredric Sosnick are partners in the Financial Restructuring & Insolvency Group at Shearman & Sterling LLP. This post is based on a Shearman & Sterling client publication.

In two recent decisions, European national courts have taken a narrow view of their obligations under the Bank Recovery and Resolution Directive (BRRD)—the new European framework for dealing with distressed banks. The message from both the English and the German courts was that resolution authorities must adhere strictly to the terms of the BRRD; otherwise, measures that they take in relation to distressed banks may not be given effect in other Member States.

Goldman Sachs International v Novo Banco SA

In August 2014, the Bank of Portugal announced the resolution of Banco Espírito Santo (BES), what at the time was Portugal’s second largest bank. That announcement followed the July disclosure of massive losses at BES, which compounded a picture of serious irregularities within the bank that had been developing for several months. As part of the resolution, BES’s healthy assets and most of its liabilities were transferred to a new bridge bank, Novo Banco (the so-called “good bank”), which received €4.9 billion of rescue funds—while troubled assets and “Excluded Liabilities,” categories specifically identified in the BRRD, remained at BES (the “bad bank”). Amongst those liabilities initially deemed to have transferred to Novo Banco in August was a USD $835 million loan made to BES via a Goldman Sachs-formed vehicle, Oak Finance.


New Rules for Mandatory Clearing in Europe

Arthur S. Long is a partner in the Financial Institutions and Securities Regulation practice groups at Gibson, Dunn & Crutcher LLP. This post is based on a Gibson Dunn publication. The complete publication, including footnotes, is available here.

On August 6, 2015, the European Commission issued a Delegated Regulation (the “Delegated Regulation”) that requires all financial counterparties (“FCs”) and non-financial counterparties (“NFCs”) that exceed specified thresholds to clear certain interest rate swaps denominated in euro (“EUR”), pounds sterling (“GBP”), Japanese yen (“JPY”) or US dollars (“USD”) through central clearing counterparties (“CCPs”). Further, the Delegated Regulation addresses the so-called “frontloading” requirement that would require over-the-counter (“OTC”) derivatives contracts subject to the mandatory clearing obligation and executed between the first authorization of a CCP under European rules (which was March 18, 2014) and the date on which the clearing obligation takes place, to be cleared, unless the contracts have a remaining maturity shorter than certain minimums. These mandatory clearing obligations for certain interest rate derivatives contracts will become effective after review by the European Parliament and Council of the European Union (“EU”) and publication in the Official Journal of the European Union and will then be phased in over a three-year period, as specified in the Delegated Regulation, to allow smaller market participants additional time to comply.


Dodd-Frank Turns Five, What’s Next?

Daniel F.C. Crowley is a partner at K&L Gates LLP. This post is based on a K&L Gates publication by Mr. Crowley, Bruce J. HeimanSean P. Donovan-Smith, and Giovanni Campi.

The 2008 credit crisis was the beginning of an era of unprecedented government management of the capital markets. July 21, 2015 marked the fifth anniversary of the hallmark congressional response, the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank”). Dodd-Frank resulted in an extraordinary revamp of the regulatory regime that governs the U.S. financial system and, consequently, has significant implications for the U.S. economy and the international financial system.

Members of Congress recognized the fifth anniversary of Dodd-Frank in markedly different ways. House Financial Services Committee Chairman Jeb Hensarling (R-TX) has held two of a series of three hearings to examine whether the United States is more prosperous, free, and stable five years after enactment of the law. In contrast, Senator Elizabeth Warren (D-MA)—one of the leading proponents of the law—and other members of Congress have criticized the slow pace of implementation by the regulatory agencies. Meanwhile, Senate Banking Committee Chairman Richard Shelby (R-AL) is advancing the “Financial Regulatory Improvement Act of 2015,” which seeks to amend a number of provisions of Dodd-Frank.


Corporate Governance and Diversity

Aaron A. Dhir is an Associate Professor of Law at Osgoode Hall Law School in Toronto, Canada. The post is based on Professor Dhir’s book, Challenging Boardroom Homogeneity: Corporate Law, Governance, and Diversity (Cambridge University Press, 2015).

Earlier this year, Germany joined the ranks of countries such as Norway, France, Italy, Belgium, and Iceland by enacting a quota to increase the number of women in its corporate boardrooms. Starting in 2016, both genders must make-up at least 30 percent of specified German companies’ supervisory boards.

The news from Germany provoked decidedly negative reactions in major media outlets. In the New York Times, the Washington Post, and the Economist, critics questioned the soundness of pursuing positive discrimination in the corporate governance arena. The reality, however, is that we actually know very little about how corporate quotas have worked in practice. Advocates and detractors each suggest that these measures will alter the effectiveness and dynamics of firms in some way—whether for better or worse. But the speculation remains largely uncorroborated and our knowledge is incomplete at best.

Foreign Antitakeover Regimes

Daniel Wolf is a partner at Kirkland & Ellis focusing on mergers and acquisitions. The following post is based on a Kirkland memorandum by Mr. Wolf. Related research from the Program on Corporate Governance includes The Case Against Board Veto in Corporate Takeovers by Lucian Bebchuk.

The confluence of a number of overlapping factors—including an uptick in global and cross-border M&A activity, a resurgence in unsolicited takeover offers, the continued flow of tax inversion transactions, and the growth of activism in non-U.S. markets—means that U.S. companies and investors are more often facing unfamiliar takeover (and antitakeover) regimes as they evaluate and pursue offers for foreign targets. While experienced dealmakers are often well-versed in the nuances of friendly transactions with a foreign seller, the defenses available, and sometimes unavailable, to foreign companies facing unsolicited or hostile offers occasionally come as a surprise and complicate the pursuit or defense of these bids.

While a comprehensive survey of antitakeover regimes in various foreign jurisdictions is well beyond the scope of this post, it is instructive to highlight a number of examples where the regime—mandatory or permissive—departs significantly from U.S. practices, even in countries with well-developed legal systems and capital markets.

In a number of jurisdictions, the applicable takeover rules can be seen to facilitate, or even encourage, offerors in taking rejected overtures to the public shareholders:


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