The FinReg Pod

Kathryn Judge is a professor at Columbia Law School and Aaron Klein is a Senior Fellow at the Brookings Institution. They discuss the origins of the Federal Home Loan Banks, the role they played in propping up failing banks in the 2023 regional banking crisis, and their ideas for how the FHLBs can be reformed to better fulfill their public mission to promote housing and community development.

Kate Judge’s X: @ProfKateJudge

Aaron Klein’s X: @Aarondklein

Lee’s X: @leereiners

Related Links:

Comment Letter on FHLB Mission Statemen, Kathryn Judge and Aaron Klein: https://www.brookings.edu/wp-content/uploads/2024/07/Klein-Judge-FHLB-mission-statement-comment-FINALpdf.pdf

Forum on the future of the Federal Home Loan Bank system: Highlights from the Brookings and BU Law event, Aaron Klein, Cornelius Hurley, and Harrison Fregeau: https://www.brookings.edu/articles/forum-on-the-future-of-the-federal-home-loan-bank-system-highlights-from-the-brookings-and-bu-law-event/

How to fix the Federal Home Loan Banks, Kathryn Judge and Aaron Klein: https://www.brookings.edu/articles/how-to-fix-federal-home-loan-banks/

FHLBank System at 100: Focusing on the Future, Federal Housing Finance Agency: https://www.fhfa.gov/sites/default/files/2024-01/FHLBank-System-at-100-Report.pdf

John Coates is the John F. Cogan, Jr. Professor of Law and Economics at Harvard Law School and author of “The Problem of Twelve: When a Few Financial Institutions Control Everything.” According to John, a problem of twelve arises when a small number of institutions acquire the means to exert outsized influence over the politics and economy of a nation. In this episode, John discusses insights from his book and how the concentration of corporate power in the hands of a small group of institutional investors, specifically index funds and private equity funds, undermines our democracy.

Lee’s X: @leereiners

Lee’s Website: www.leereiners.com

Related Links:

The Problem of Twelve: When a Few Financial Institutions Control Everything: https://www.amazon.com/Problem-Twelve-Financial-Institutions-Everything/dp/B0BW67PX7B

Art Wilmarth, Professor Emeritus of Law at the George Washington University Law School, reflects on the regional banking crisis of spring 2023 and how decisions made by regulators to resolve Silicon Valley Bank, Signature Bank, First Republic Bank, and Credit Suisse reveal that we have still not solved the Too Big to Fail problem.

Lee’s X: @leereiners

Lee’s Website: www.leereiners.com

Related Links:

The FDIC’s resolution plan for failed megabanks is an empty promise: https://www.americanbanker.com/opinion/the-fdics-resolution-plan-for-failed-megabanks-is-an-empty-promise

Regulators should reject big-bank arguments against stronger capital requirements: https://thehill.com/opinion/4715182-regulators-should-reject-big-bank-arguments-against-stronger-capital-requirements/

We Need a New Glass-Steagall Act to End the Toxic Symbiosis Between Universal Banks and Shadow Banks, Which Professor Corrigan Has More Fully Revealed: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4794680

Statement by Martin J. Gruenberg, Chairman, Federal Deposit Insurance Corporation on Title 1 Resolution Plan Feedback Letters for 8 U.S. GSIBs: https://www.fdic.gov/news/speeches/statement-martin-j-gruenberg-chairman-federal-deposit-insurance-corporation-title-1

Martin J. Gruenberg, Chairman, FDIC Lessons Learned from the U.S. Regional Bank Failures of 2023 Florence School of Banking and Finance: https://www.fdic.gov/news/speeches/martin-j-gruenberg-chairman-fdic-lessons-learned-us-regional-bank-failures-2023

US regulator criticises Swiss handling of Credit Suisse as ‘unhelpful’: https://www.ft.com/content/9fb79310-b8e4-47d8-99cf-a7630eae59e7

FDIC Board of Directors Approves Final Revised Rule to Strengthen Resolution Planning for Large Banks: https://www.fdic.gov/news/press-releases/fdic-board-directors-approves-final-revised-rule-strengthen-resolution-planning

Overview of Resolution Under Title II of the Dodd-Frank Act: https://www.fdic.gov/sites/default/files/2024-04/spapr1024b_0.pdf

Eric Spitler, former Director of the Office of Legislative Affairs at the FDIC, discusses his paper on the history of bank runs and how he would reform deposit insurance to address the weaknesses revealed by last spring’s regional banking crisis.

Lee’s X: @leereiners

Related Links:

Yelling 'Fire' in the Financial Theater: Bank Runs in the Social Media Age and the Threat to Financial Stability: https://scholarship.law.unc.edu/ncbi/vol28/iss1/5/

The Deposit Insurance Funds as an Early Resolution Tool: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4897571

Danny Cullenward is a distinguished Senior Fellow with the Kleinman Center for Energy Policy at the University of Pennsylvania. He joined Lee to discuss the current state of voluntary carbon credit markets and efforts in the U.S. and abroad to regulate carbon credits.

Lee’s X: @leereiners

Related Links:

Danny’s website: https://www.ghgpolicy.org/

Webinar: What Role Will Carbon Removal Play Under Article 6 of the Paris Agreement? https://youtu.be/jovH809dhg0?si=e96ktXxTcRcKJvRd

Sean Vanatta is a lecturer in US Economic and Social History at the University of Glasgow and author of the new book "Plastic Capitalism: Banks, Credit Cards, and the End of Financial Control." Sean sits down with Lee to discuss the history of credit cards in the United States and how this history informs current policy debates, including Capital One’s proposed acquisition of Discover and the Credit Card Competition Act.

Lee’s X: @leereiners

Sean’s X: @SeanVanatta

Related Links

Plastic Capitalism: Banks, Credit Cards, and the End of Financial Control: https://yalebooks.yale.edu/book/9780300247343/plastic-capitalism/

Jonah Crane, a partner at Klaros Group and former Treasury Department official, breaks down the recent collapse of fintech company Synapse, which has left thousands of customers without access to their funds. Crane also reflects on the regulatory response and the broader impact Synapse’s failure will have on Banking as a Service.

Lee’s X: @leereiners

Jonah’s X: @JonahCrane

Related Links

Klaros Group: https://www.klaros.com/

Does BaaS have a future: https://www.klaros.com/post/does-baas-have-a-future

Nearly $109 million in deposits held for fintech Yotta’s customers vanished in Synapse collapse, bank says: https://www.cnbc.com/2024/06/21/synapse-collapse-nearly-109m-in-yotta-customer-deposits-vanish.html

Abrupt shutdown of financial middleman Synapse has frozen thousands of Americans’ deposits: https://apnews.com/article/synapse-evolve-bank-fintech-accounts-frozen-07ecb45f807a8114cac7438e7a66b512

Prometheum is the one firm that other crypto firms love to hate. This is because the firm’s founders and co-CEOs, brothers Aaron and Ben Kaplan, have consistently and publicly argued that most cryptocurrencies are investment contracts subject to SEC registration requirements. In this episode, Aaron Kaplan joins Lee to discuss the process Prometheum followed to receive regulatory approve to operate an alternative trading system and special purpose broker dealer, which allows the firm to offer trading, clearing, settlement, and custody of digital asset securities. Aaron also addresses the frequent criticisms leveled at his firm and offers his thoughts on the future of the digital asset industry.

Lee’s Twitter: @leereiners

 

Related Links

 

*Prometheum Receives First of Its Kind Approval From FINRA to Clear and Settle Digital Asset Securities: https://www.businesswire.com/news/home/20240110419249/en/Prometheum-Receives-First-of-Its-Kind-Approval-From-FINRA-to-Clear-and-Settle-Digital-Asset-Securities

 

*Prometheum Announces Custodial Services for Ether (ETH), Opens Account Sign Up For Institutional clients: https://www.businesswire.com/news/home/20240207966185/en/Prometheum-Announces-Custodial-Services-for-Ether-ETH-Opens-Account-Sign-Up-For-Institutional-Clients

 

*SEC may be forced to declare Ethereum a security after controversial new launch: https://fortune.com/crypto/2024/02/07/sec-prometheum-ethereum-broker-dealer-gary-gensler-coinbase/

 

*Blockchain Association Calls for Investigation into SEC Approval of Prometheum Ember Capital as Special Purpose Broker-Dealer: https://theblockchainassociation.org/blockchainassociation-calls-for-investigation-into-sec-approval-of-prometheum-ember-capital-as-special-purpose-broker-dealer/

 

*‘Crypto Communism’? Not in America: https://www.wsj.com/articles/prometheum-digital-asset-crypto-china-wanxiang-tuberville-eab5629b

 

*U.S. Senator Tuberville Asks DOJ, SEC to Investigate Crypto Broker Prometheum:

 https://www.coindesk.com/policy/2023/07/10/us-senator-tuberville-asks-doj-sec-to-investigate-crypto-broker-prometheum/

 

*Testimony of: Aaron Kaplan Co-CEO and Founder, Prometheum, Inc. Before the U.S. House of Representatives Financial Services Committee: https://docs.house.gov/meetings/BA/BA00/20230613/116085/HHRG-118-BA00-Wstate-KaplanA-20230613.pdf

 

*Agriculture, Financial Services Republicans Demand Sec Clarify Position Regarding Prometheum’s Custody Of Ethereum’s Ether: https://agriculture.house.gov/news/documentsingle.aspx?DocumentID=7749

Well Fargo was an iconic and respected American Brand. But then, in September 2016, in a settlement with the City of Los Angeles, the OCC, and CFPB, it was revealed that approximately 5,300 Wells Fargo employees had been terminated between 2011 and 2016, for sales practice violations that included opening over two million unauthorized deposit and credit card accounts. Earlier this year, Kevin Wack published a 5-part series in the American Banker that shed new details on the scandal. Kevin came on the show to talk about how the series came together and what his reporting uncovered. He also provides an update on what has happened to some of the senior executives involved in the scandal and shares his thoughts on the enduring lessons the Wells Fargo scandal provides.

Leave questions and comments at [email protected]

Lee’s Twitter: @leereiners

Related Links

*Alarm bells, arrogance and the crisis at Wells Fargo: https://www.americanbanker.com/news/alarm-bells-arrogance-and-the-crisis-at-wells-fargo

*How Wells Fargo's Aggressive Sales Culture Took Root: https://www.americanbanker.com/news/how-wells-fargos-aggressive-sales-culture-took-root

*Wells Execs Stuck to the Script as Evidence of Sales Abuses Mounted: https://www.americanbanker.com/news/wells-execs-stuck-to-the-script-as-evidence-of-sales-abuses-mounted

*Deal to put ex-Wells Fargo executive behind bars sends tough message: https://www.americanbanker.com/news/deal-to-put-ex-wells-fargo-executive-behind-bars-sends-tough-message

*The Rise and Fall of Wells Fargo with Dick Kovacevich: https://open.spotify.com/episode/7f2D7PL9ZM1zLlnNCneK0L

*Wells Fargo Unauthorized Account Openings: A Case Study for Bank Board Directors: https://sites.duke.edu/thefinregblog/2017/04/26/phony-accounts-scandal-a-case-study-for-bank-board-directors/

 

James Wigginton has thought deeply about economic power and the role cooperatives can play in ensuring Web3 lives up to its stated potential of sharing ownership with users in digital networks. James joins Lee to discuss how cooperatives can be used by Web3 firms to engage with their users, strengthen digital networks, and remain compliant with securities laws. James also talks about the potential for sports fans to own a part of their favorite teams by allowing cooperatives to take minority stakes in teams.

Leave questions and comments at [email protected]

Lee’s Twitter: @leereiners

Related Links

*Cooperatives: An Ownership Model for Digital Networks: https://media.orrick.com/Media%20Library/public/files/insights/2023/cooperatives-path-to-compliance-for-web3.pdf

*Can fan-owned cooperatives change the relationship between fans and owners for the better? https://theathletic.com/4783026/2023/08/17/fan-cooperatives-sports-ownership/?access_token=13946098