Posts Tagged ‘banks’

From TSA to small business lending, emergency regs often make the next emergency worse

My new piece at the Washington Examiner examines how government responses to the last crisis impede response to the next one. The post-9/11 TSA checkpoint system, for example, “is now the one point in air travel where a virus-fearing traveler is least able to avoid prolonged physical or face-to-face contact with a stranger, as well as the… commingling of high-touch personal items on communal trays.” With the COVID-19 crisis, the old rules requiring banks to report “suspicious” transactions are causing all sorts of problems as ordinary customers radically change their banking habits. Worse, “Know Your Customer” regs rationalized on anti-terrorism grounds have become a bottleneck to processing thousands of applications for short-term funds from small businesses not previously known to the bank. Verifying KYC information on a small business, even if it’s got access to all its files, can take a month. Who’s supposed to wait that long amid today’s crisis? (more from colleague Diego Zuluaga on the rules’ failings)

I conclude: of the many good reasons for deregulation, one “is that it bolsters resilience when systems [like banks] are asked to cope with complex new perils.”

Filed under: banks, COVID-19 virus, disasters, regulation and its reform, small business, WO writings

Banking and finance roundup

“Comparing the 2008 financial crisis to the COVID-19 market upheaval” [Stephen Bainbridge, with chart]
Fed has tried getting involved directly in smaller business lending before, and it hasn’t worked out well [George Selgin] “Evaluating Federal Reserve Moves amid Coronavirus Outbreak” [Cato Daily Podcast with George Selgin and Caleb Brown]
Liquidity for you, liquidity for me, but Washington crisis response might have overlooked liquidity for mortgage servicers [Diego Zuluaga, Cato]
“Coronavirus: An Update on Securities Suits and on Updating Company Disclosures” [Priya Cherian Huskins via Kevin LaCroix] “There are likely many more securities lawsuits to come.” [Jim Sams, Insurance Journal]
The flimsy critique of stock buybacks: “Would United be worse off if it had spent $3 billion on dividends instead of buybacks? In each case, United has $3 billion less, and shareholders have $3 billion more that they can invest in something else” [Ted Frank, Washington Examiner]
From before the crisis: George Selgin on Warren Mosler and the great American banking myth; Kevin LaCroix on mootness fees in securities class actions; James Pethokoukis on CEO pay; Diego Zuluaga on bank concentration; Jeffrey Miron on bank bailouts (“It is hard to think of [a solution] so long as people believe government can magically make bank lending safe.”)

Filed under: banks, corporate governance, COVID-19 virus, securities litigation

An emergency bonfire of the regulations

So as to deploy medical services more effectively during the COVID-19 emergency, the Department of Health and Human Services has announced that it will forgo enforcement of rules restricting telemedicine, both by waiving HIPAA prohibitions on the use of everyday communications technologies like Skype and FaceTime, and by removing a requirement that reimburseable services be provided by the holder of an in-state license. At the same time, as I noted last week, many states have been relaxing rules prohibiting practice by out-of-state medical professionals (partial list here).

That’s part of a pattern in which governments are slashing many old regulations that they realize get in the way of crisis response and complicate the lives of ordinary citizens trying to work and shop under difficult conditions. My Cato colleague Chris Edwards links some of them in this post, including compilations by the Competitive Enterprise Institute and Americans for Tax Reform. (More: R Street Institute; Katherine Timpf, National Review. Hospitals and medical professionals aside, suspended rules include hours of service rules for truckers driving emergency medical supplies, requirements that Florida insurance agents keep public offices, rules forbidding the combined transport of food and liquor in Texas trucks, and federal standards restricting universities’ use of online classes. How many of these rules were unnecessary or unwise in the first place?

While movement of persons between communities may pose a danger during epidemics, movement of goods remains vital to prosperity and mutual exchange. Simon Lester points out in a Cato podcast that easing trade restrictions is a direct way to address difficult bottlenecks in emergency medical supplies. Relatedly, recent tariffs on medical supplies haven’t been helpful, encouraging large factories overseas to prioritize customers outside the U.S. (earlier).

In a reaction to the financial strains caused by the outbreak, the feds have been flooding the banking system with liquidity, both by relaxing regulations and through central bank operations. Cato’s Diego Zuluaga in a podcast distinguishes between liquidity objectives and (what is rightly more controversial) bailout objectives.

Filed under: banks, COVID-19 virus, disasters, free trade, HIPAA, hospitals, medical, occupational licensure, regulation and its reform

“Reforming the Community Reinvestment Act”

“Some proposed reforms to the Community Reinvestment Act come directly from research conducted by Cato’s Diego Zuluaga. He describes why, short of getting rid of the law, reform is so essential.” [Cato Daily Podcast with Caleb Brown]

Filed under: banks

Banking and finance roundup

Senator Elizabeth Warren and her Accountable Capitalism Act represent an attempt to revive a theory of the corporation that fell out of favor long ago, that corporate status is a grant of favor in exchange for which the state may demand services or cooperation [Abdurrahman Kayiklik, Columbia Law School Blue Sky Blog; earlier with links to Warren on corporate governance and other topics]
Bill in Congress would enlist banks in watching gun sales [Robert VerBruggen/NRO; Noah Shepardson, Reason] NRA, in litigation, contends it has evidence New York state officials negotiated with U.K.’s Lloyds to curtail insurance availability in a way specifically targeted at the association [Stephen Gutowski thread]
“The Misguided Quest to Limit Choice in Consumer Credit” [Diego Zuluaga]
“The CFPB and Payday Lending Regulations” [Peter Van Doren last February; earlier on payday lending; Federalist Society Regulatory Transparency Project video on regulation-through-investigation of payday lenders with Jamie Fulmer, Chris Peterson, and Brian Knight]
Federalist Society podcast on Community Reinvestment Act with Aaron Klein and Diego Zuluaga;
Learned a new word, lutulent, which means “muddy, turbid, thick” and is more or less the opposite of luculent (“lucid, clear, transparent”) [Keith Paul Bishop on unclarities in new California law requiring gender quotas on boards (“a lutulent mess”); earlier here, etc.]

Filed under: banks, CFPB, Elizabeth Warren, guns, New York

“Expert on Money Laundering Arrested for … Well, You Can Probably Guess”

“He’s incredibly credentialed,” said a defense attorney who had employed the expert witness services of a University of Miami professor hailed as an authority on money laundering and who, according to prosecutors in a new indictment, has been lately engaging in the practice himself. [Kevin Underhill, Lowering the Bar]

Filed under: banks, expert witnesses, Florida

Banking and finance roundup

Neat trick: banks can get Community Reinvestment Act credit for lending in “low-income census tracts” even when that means extending $800K mortgages to gentrifiers [Diego Zuluaga, Politico, related policy analysis and Cato podcast]
Sen. Elizabeth Warren has a plan to regulate private equity. It’s not good [Steven Bainbridge] When you’ve lost veteran liberal columnist Steven Pearlstein… [Washington Post]
Speaking of terms with ugly histories, maybe it’s time for Sens. Warren and Sanders to retire the metaphor of the financial sector as vampires or “vultures” engaged in “sucking” or “bleeding” [Ira Stoll, related]
Volume of securities litigation is on sharp upswing, policy remedies needed [Kevin LaCroix/D&O Diary and more, Chubb “Rising Tide” report] Rising in Australia too [Nicola Middlemiss, Insurance Business Australia]
Unconstitutionality of CFPB structure hasn’t gone away and neither has the need for the Supreme Court to tackle the issue [Ilya Shapiro on Cato certiorari amicus brief in Seila Law LLC v. CFPB] Appointment process for Puerto Rico financial oversight board under PROMESA law is of doubtful constitutionality [Shapiro on Cato amicus brief in Financial Oversight & Management Board for Puerto Rico v. Aurelius Investment, LLC]
In an age of professional consultants, why does the law continue to require corporate governance to be delivered by way of individual board members? Firms specializing in board services could offer attractive alternative [Todd Henderson, Charles Elson, Stephen Bainbridge, Federalist Society Forum]

Filed under: Australia, banks, Bernie Sanders, CFPB, corporate governance, Elizabeth Warren, securities litigation, Wall Street

Now, a push for more disclosure of who owns businesses

Cato event featuring David R. Burton, Richard Hay, Karen Kerrigan, & Diego Zuluaga:

Policymakers on both sides of the aisle have proposed new regimes for small-business beneficial ownership reporting. The aim of such legislation is to eliminate opportunities for money laundering and financial crime. However, the proposals before Congress would place heavy new compliance costs on millions of America’s small businesses while continuing to provide opportunities for bad actors to engage in illicit financial activities. Beneficial ownership reporting would add to an already onerous anti-money-laundering/know-your-customer (AML/ KYC) regulatory burden, cited by community banks as the single most costly financial regulation. Furthermore, international experience with beneficial ownership reporting requirements suggests that it will be difficult to make such requirements work in the United States.

Earlier on money laundering and know your customer (KYC) regulations.

Filed under: banks, corporate governance, privacy, small business

Finally, reform of structuring-law seizures

For years this website has covered the injustices of structuring law, under which persons who deposit or withdraw sums deemed too close to the $10,000 reporting threshold, even if for reasons that prove innocuous, can face seizure of their accounts. Now, under a tax-bill provision unanimously adopted by Congress and signed by President Trump, “the IRS can now only seize property for structuring if it’s ‘derived from an illegal source’ or if the money were structured to conceal criminal activity.” [Nick Sibilla, Forbes; Jacob Sullum, Reason; earlier]

Filed under: banks, forfeiture, taxes

“Congress Passes Bill To Protect Small-Business Owners from IRS Seizures”

On June 13 “the U.S. Senate unanimously approved legislation that stops the Internal Revenue Service from raiding the bank accounts of small-business owners. The Clyde-Hirsch-Sowers RESPECT Act, passed as part of the Taxpayer First Act (H.R. 3151), is named after Institute for Justice clients Jeff Hirsch and Randy Sowers, two victims of the IRS’s aggressive seizures for so-called ‘structuring.’ Through structuring laws, the IRS has routinely confiscated cash from ordinary Americans simply because they frequently deposited or withdrew cash in amounts under $10,000. And by using civil forfeiture, the IRS can keep that money without ever filing criminal charges.” [Nick Sibilla, Institute for Justice] We’ve covered the problems with structuring law, as well as asset forfeiture, for many years.

Filed under: banks, forfeiture, taxes