Should banks be treated as utilities?  Matt Levine comments:   “A lot of bankers think this is bad (Jamie Dimon: “There is nothing about banking that remotely resembles a utility”), while a lot of regulators and bank critics think it is good (Neel Kashkari: “Turn large banks into public utilities by forcing them to hold so much capital that they virtually can’t fail”). But what you see less of — not none — is calls for banks to be true utilities, meaning not only that they’re safe and boring and that their returns are capped, but also that their returns are more or less guaranteed. After all, the phrase “competitive utilities” is a bit of a paradox; the reason your gas company’s prices are capped is that it’s the only gas company in town, and if the rates weren’t regulated it could charge as much as it wanted.

Certainly a bank’s expectation that it can earn 25% on money held leads to Libor and other high risk and even illegal operations.

It may be difficult for people who are not in the US to understand how corrupt Hillary Clinton and her husband seem to the American people.  The latest frouhaha concerns almost 20 million dollars from an online University that Mrs. Clinton promoted at the State Department.

The guest list for a private State Department dinner on higher- education policy was taking shape when Secretary of State Hillary Clinton offered a suggestion.

In addition to recommending invitations for leaders from a community college and a church-funded institution, Clinton wanted a representative from a for-profit college company called Laureate International Universities, which, she explained in an email to her chief of staff that was released last year, was “the fastest growing college network in the world.”

There was another reason Clinton favored setting a seat aside for Laureate at the August 2009 event: The company was started by a businessman, Doug Becker, “who Bill likes a lot,” the secretary wrote, referring to her husband, the former president.

Nine months later, Laureate signed Bill Clinton to a lucrative deal as a consultant and “honorary chancellor,” paying him $17.6 million over five years until the contract ended in 2015 as Hillary Clinton launched her campaign for president.

According to the Federal Deposit Insurance Corporation (FDIC), there have been only seven new bank charters since 2010. By way of comparison, there were 175 new banks (or “de novos,” as they are called in the industry) in 2007 alone. Indeed, from 1997 to 2007, the United States averaged 159 new banks a year.

To be sure, the number of banks has been falling for decades. Before the late 1970s, banks were prohibited from operating branches in most states, which inflated the number of unique banks in the country. States gradually did away with these unit banking laws in the 1970s and 1980s, a process that culminated on a national level with the Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994. The total number of banks has fallen by about 9,000 since the mid-1980s, as weaker banks merged with stronger ones. (See chart below.) But there was always a steady influx of new banks to replace some of those lost – until now..

In late 2013, the Bank of Bird-in-Hand opened its doors in Pennsylvania’s Amish country. Even in normal times, a bank featuring a drive-through window built for a horse and buggy would have drawn curious onlookers. But the Bank of Bird-in-Hand made headlines for another reason: It was the first newly chartered bank anywhere in the United States in three years.

The question is: should we restore the basic notion of a bank: keep people’s money safely, lend to the community and make a reasonable profit?

The G-20 meets in China. This is a uniquely high-profile occasion for China to illustrate that it is indispensable to an effective, progressive global governance system. In a letter posted online in December 2015, President Xi Jinping articulated his view of the 2016 summit’s themes and key agenda items, highlighting the need for “an action-oriented G20.” Managing the fallout from Brexit will inevitably consume a portion of leaders’ attention in Hangzhou. But there are several other important areas in which positive input and decisive actions from China could yield meaningful results. At the “broad” end of the spectrum is the U.N.’s 2030 Agenda for Sustainable Development. China has emphasized its commitment to the 2030 Agenda, asserting that G-20 members should lead its implementation. In late May, Foreign Minister Wang Yi urged that development be given priority at the Hangzhou summit, echoing Xi’s earlier call for the G-20 to “take its unique advantage to provide a package of solutions to real problems.” The G-20’s agreement on an action plan for implementing the 2030 Agenda—especially one that emphasizes infrastructure investment—would be a big win for China, demonstrating its ability to marshal support for a long-term strategic plan. It would also help set the G-20’s direction for the next decade-and-a-half and ensure that China holds a spot at the helm.

There is no shortage of global challenges for which China can assume greater responsibility in driving consensus and progress. Other priority areas include global anti-corruption, tax evasion, cybersecurity, and the ongoing refugee crisis in Europe. Either through building support around a balanced multilateral strategy, offering singular commitments, or some combination of the two, China can further establish its role as a leader of the G-20 and a devoted member of the international community.

Does banking regulation impact the markets?  Matt Levine writes; . Since the Volcker Rule was just a glimmer in Paul Volcker’s eye, I have wondered when hedge funds and smaller independent investment banks would take over some of the market making businesses that regulation has made difficult for banks. The answer seems to be now. Or maybe “too late”:

In some respects, Citadel’s recent success has been a little like crashing a house party after the police have already busted it up.

Global banking rules intended to make the financial system safer have caused a retreat from the market in recent years. The total size of the credit-default swap market has shrunk to $12 trillion from $34 trillion in October 2008, according to DTCC data.

Broadly speaking, two things make it hard for newcomers to break into a financial market dominated by big banks. One is market structure: If people trade by calling their salespeople at the same three banks, it’s hard to get on their speed dial; if people trade by going to an exchange, it’s much easier to get a spot on the exchange. Much of the Citadel story is about its bitterly contested fight for more transparency, central clearing, electronic execution, etc. in the CDS market.

The other thing is balance sheet. Big banks have so much money. This has not stopped Citadel and other high-frequency trading firms from taking a lot of business from them in the stock market, because it turns out you don’t need that much money to trade a whole lot of stocks. (You just have to sell them quickly.) Traditionally, you need a lot of money to make markets in bonds or CDS, because you tend to hold on to them for a while. Central clearing of CDS helps with that problem, but even more helpful has just been a regulatory environment that negates the banks’ cash advantage. For all their money, banks can’t afford to hold on to trades any more than Citadel can.

Is there a right and wrong in taxation.  The Economist writes: American companies are driven to tax trickery by the combination of a high statutory tax rate and policies that allow taxes to be deferred if they are stashed abroad.  Cutting the rate, taxing only profits made in America, and ending deferral would encourage firms to bring money back home.

Firing broadsides at deals made long ago is not going to help.

 

Can Caribbean banks function under the spotlight of regulators?

The Caribbean Association of Banks (CAB) has welcomed recent remarks by Christine Lagarde, Managing Director of the International Monetary Fund (IMF), over the problem of correspondent banks in the region de-risking and hopes that the organisation can help stop the current trend. As larger, mainly North American banks end their relationships with regional banks because of perceived regulatory risk and small profits, the banking sector across the Caribbean is getting increasingly concerned that the constant withdrawal of partner banks will destabilize all of its economies.

The problem came to the forefront in the Cayman Islands last summer when a number of local money transfer firms lost their relationships with their US banks, making it very difficult for the thousands of overseas workers here to remit earnings back to their native countries or for Caymanians to help their friends and family overseas with cash transfers.

But the de-risking is having a wider impact on Caribbean banking in general and Lagarde has described it as a “collective action problem that calls for a collective solution” as banks pull out of the region.

The CAB said that it has been raising the alarm about the effects on the Caribbean region for two years and has requested intervention over the loss of correspondent banking relationships that could render the Caribbean region “unbankable and ultimately destabilize all sectors of the economies”.

Among the many negative impacts anticipated from the disturbing trend of de-risking on small nation states is the risk of financial exclusion, a shrinking financial sector, thriving underhand economies, increased use of unregulated payment options and a barrier to attaining the Millennium Development Goal 10.

As was demonstrated by the enormous level of concern last summer from Jamaicans in Cayman who regularly send money home, that country is extremely dependent on remittances. The CAB said average remittances to Jamaica from overseas work accounts for 15% of the entire GDP.

Lagarde said, “Correspondent banking is like the blood that delivers nutrients to different parts of the body. It is core to the business of over 3,700 banking groups in 200 countries.”

While the CAB is hoping the IMF will come up with a solution, so far the private banking sector in North America in particular is still pulling out of the region, which the CAB said is putting the livelihoods of Caribbean people in serious danger.

Chappatte

Ireland allowed Apple to pay an effective corporate tax rate of 1 percent on its European profits in 2003 down to 0.005 percent in 2014, according to EU Competition Commissioner Margrethe Vestager.

“If my effective tax rate would be 0.05 percent falling to 0.005 percent — I would have felt that maybe I should have a second look at my tax bill,” she told reporters..

The U.S. Treasury Department, which has pushed back hard against the EU state-aid probes, said the commission’s actions “could threaten to undermine foreign investment, the business climate in Europe, and the important spirit of economic partnership between the U.S. and the EU.”

Apple executives have shared concerns about the company’s tax treatment overseas with officials in President Barack Obama’s administration.

Administration officials are broadly concerned that what Earnest called the EU’s “unilateral approach” doesn’t undermine coordinated efforts to prevent an “erosion of the tax base.” Also, he said, they want to ensure that any actions are fair to U.S. taxpayers and U.S. businesses.

Apple, which employs about 6,000 people in Ireland, was one of the first companies caught up in the EU’s backlash against corporate tax-avoidance. The EU, like other global regulators, has targeted firms that sidestep taxes by moving around profits and costs to wherever they are taxed most advantageously — exploiting loopholes or special deals granted by friendly governments.

Issues of a wide variation in the percent of corporate taxes charged by different nations across the global in a global economy continue unresolved.

Mylan was assaulted by petitions from ordinary citizens when it doubled the price on a drug that is indispensable for people who suffer from severe allergies.  The pharmaceutical company that makes the expensive, life-saving EpiPen—an auto-injector that comes preloaded with anaphylaxis treatment—will launch a generic version of the product in the wake of intense criticism over recent price hikes. A new generic will cost $300 for a two-pack, which is about half the regular version’s market price. It will be available within the next several weeks. Mylan CEO Heather Bresch called her company’s move “an extraordinary commercial response” to patient anger and frustration over the rising cost of EpiPen. Last week, the drug maker had offered discounts on the shots for lower-income patients and triggered further anger. The company was widely criticized by parents and right-minded citizens following the latest price rises, which amounted to more than 400 percent over the past 10 years.

Roger Ailes, the CEO of Fox News, had a long history of preying on female employees of Fox.  He was dismissed because the sons of Rupert Murdock got tired of his behavior and hired a law firm to track his predatory history.

William E. Black writes:  The concepts of “control fraud” and whistleblowing are related. The many women who risked their careers to blow the whistle on Ailes were classic whistleblowers. A University of Michigan Law School professor who was instrumental in creating a civil remedy for sexual harassment wrote:

Victims of sexual harassment can see what happens to other victims who came forward. “It’s career suicide to come forward, You’re roadkill. Women know this, yet some come forward. That’s what courage looks like.”

The people, overwhelmingly women, who bring complaints of sexual harassment in the workplace are whistleblowers. As a co-founder of Bank Whistleblowers United (BWU) I can vouch professionally and personally that it takes “courage” to blow the whistle. The sexual harassment context can call for the particularly great courage among whistleblowers because blowing the whistle will provide highly personal information about the victim and inevitably leads to “slut shaming” abuse and trolls.

MacKinnon also rightly emphasizes the inherent role of the harasser’s power over the harassed.

“A lot of men have gotten away with sexual harassment with absolutely no consequences,” said Catharine A. MacKinnon, a professor of law at the University of Michigan and Harvard Law School who pioneered sexual harassment lawsuits. No matter what companies say, she added, “the real rule is that the more powerful a man is, the more he gets away with.”

“Control fraud” is a term and a theory that explains why the consequences of fraud are vastly more severe when the person who controls a seemingly legitimate entity uses it as a “weapon” to defraud. Sexual harassment is a fraud+ crime. The fraud is the deceitful statements by your boss that you were hired for your skills and would be advanced in the organization on the basis of the quality of your work. But sexual harassment is a broader crime that includes extortion. Like fraud, sexual harassment is an intentional wrong. For the sake of brevity, I will discuss for-profit firms, but the same logic applies to non-profits and government entities.

Control fraud theory explains why the combination of the seeming legitimacy of the firm and the unique power of the persons controlling the entity (I’ll use the term “CEO” for brevity) combine to create an environment in which the CEO can cause enormous harm. Bauer begins to get at that in his use of these key words: “rewarded,” “shielding,” “powerful,” and “culture.” What Bauer is describing are all important elements of how a CEO creates a criminogenic environment to optimize the use of the firm as a weapon. Ailes is alleged to have shaped such a criminogenic environment through the power to hire, fire, promote, compensate, and give or deny prominent air time. The goal according to public reports was not simply to reward other bosses for “shielding” Ailes, but to coerce younger women to have sex with Ailes, and not to go public with their complaints even if he was unable to successfully coerce them to have sex or he lost interest in them.

CEOs are the dominant creators of a firm’s “culture.” If, like me, you have had the misfortune of being forced to attend firm ethics presentations, you will have heard the same useless speechifying by business ethics “experts.” The expert will pronounce that the “tone at the top” of the firm is absolutely critical. The CEO will tell everyone how much he wants a world-class culture of ethics.

Talk by CEOs is cheap. CEOs establish the real tone at the top through their financial incentive systems and who they promote and make wealthy. If the CEO is honest, the incentive system and the personnel decisions will show that the most ethical, competent people are rewarded. If the opposite is true, then all the speeches by the CEO and the corporate “ethics statements” are simply part of crafting the criminogenic environment. The lawyers will help the CEO send out a barrage of self-serving praise for ethics in order to make it appear that the corrupt officers that the CEO has hired and promoted and incentivized to cheat were “rogues” acting in violation of the CEO’s orders. This is a subtler form of “shielding” the CEO from accountability.

Even when the victim, knowing it would destroy her career, persisted in bringing complaints for sexual harassment against Ailes, he shaped an environment at Fox News that was so criminogenic that it prevented the complaints from becoming public for over a decade. Like Soviet military doctrine, the CEO’s lawyers build “defense in depth” to protect the CEO from any personal accountability for sexual harassment. The goal is to make any victim of sexual harassment face the equivalent of attacking Kursk. The lines of defense Ailes used include:

• Requiring the employee to sign a confidentiality agreement
• Requiring the employee to sign an agreement waiving any right to sue, limiting any claim to arbitration, and making that arbitration secret (arbiters are also typically more hostile to claimants than are courts)
• Requiring the employee not to disparage the firm and its officers and employees
• Using the resources of Fox News to investigate and intimidate victims and reporters who might make their story public
• Smearing the victim through Fox News’ PR and legal staffs
• Allowing Ailes, secretly, to use millions of dollars in funds from Fox News to settle complaints of sexual harassment brought by the most committed victims – in return for non-disclosure agreements that would hide the “pattern and practice” of sexual harassment by Ailes
• Creating situations in which victims still with Fox News either had to praise Ailes to on-air reporters and interviewers or, effectively, destroy their careers. Those statements by the victims could then be used to portray the victims as liars if they later made public Ailes’ sexual harassment
• Ailes creation of a culture at Fox News of fear and enrichment that meant that most colleagues were hostile to the victims and would provide support for Ailes and attacks on victims
• The payment of enormous sums from the firm to Ailes when, after an extensive pattern of sexual harassment, he eventually left. A firm is supposed to “claw back” past compensation from its CEO in such circumstances, not give him a $40 million reward.

As with financial whistleblowers, the employees who blow the whistle on sexual harassment are the firm’s best employees. They have proven their courage in the hottest of crucibles.