All items from Securities and Financial Sector Legal Review

Yesterday, Judge Jed S. Rakoff of the United States District Court for the Southern District of New York denied Bank of America‘s motion to dismiss claims brought by the United States under the Financial Institutions Reform Recovery Enforcement Act (“FIRREA”). We previously reported on the lawsuit when it was filed back in October.

At a meeting this week of its Technology Advisory Committee, the Commodity Futures Trading Commission discussed the need for new regulations aimed at high-frequency trading following a high-profile hacking incident involving theAssociated Press’ Twitter account earlier this month.
In a statement to the Committee, Commissioner Bart Chilton stated:
we should open our eyes to the fact that technology has placed us, at times, in a perilous position with regard to financial markets.  It’s worrisome that markets could move so fast based on a hoax. It’s likely that high frequency traders made money on the way down and the way up but there undoubtedly were folks who got caught, lost money and then couldn’t get back in.  This only serves to underscore the importance of better regulation of cheetah traders. While I don’t believe we should be out to make these cats extinct, we need the regulatory tools to keep them in their cages when they go feral.

 
Last week, Sherrod Brown (D-OH) and David Vitter (R-LA) introduced S. 798, the Terminating Bailouts for Taxpayer Fairness Act to the United States Senate.  The bill seeks to address the issue of “too big to fail” banks, largely through increased capital requirements.
A one-page summary of the bill, available on Senator Brown’s website, provides that
Regulators would walk away from BASEL 3, and institute new capital rules that don’t rely on risk weights and are simple, easy to understand, and easy to comply with.
o Regulators will determine the appropriate level for banks under $50 billion in assets.
o Regional banks will be required to have 8 percent equity to total assets.
o The largest banks will have a minimum 15 percent capital requirement. They will be faced with a clear choice: either become smaller or raise enough equity to ensure they can weather the next crisis without a bailout. Federal regulators have the option of increasing the capital level as an institution grows.

We previously posted (here and here) about the Justice Department’s civil suit against Standard & Poor’s concerning its ratings of CDO transactions, which was filed in February in the Central District of California (the complaint is available here). The Complaint brings claims against S&P under the Financial Institutions Reform, Recovery & Enforcement Act (“FIRREA”) and seeks $5 billion from S&P.  Among other things, the DOJ claims that S&P was aware of the deteriorating housing market and did not adjust its methodologies. In support of these allegations, the government cites internal S&P emails, instant message exchanges, and a employee-created video parading the imploding housing market.