Week InReview

Happy Anniversary Modigliani-Miller

"June 2018 will mark the 60th anniversary of the publication of Franco Modigliani and Merton Miller's classic article, 'The Cost of Capital, Corporation Finance, and the Theory of Investment.' Widely hailed as the foundation of modern finance, their article, which purports to demonstrate that a firm's value is independent of its capital structure, is little known by lawyers, including legal academics. That is unfortunate, because the Modigliani-Miller capital structure irrelevancy proposition (when inverted) provides a simple, but powerful framework that can be extremely useful to legal academics, practicing attorneys, and judges."

The Modigliani-Miller Theorem at 60: The long-overlooked legal applications of finance's foundational theorem
Friday | Jan 19, 2018
Let's recap
In case you missed it . . .
What's got the New York Fed president worried?
In a speech, William Dudley outlined two things he's not worried about and three things that have him concerned (Jan 17)

Fannie-Freddie regulator urges utility mortgage guarantors
Fannie Mae and Freddie Mac's regulator is throwing its voice into the debate about what to do with the two companies at the center of the U.S. mortgage system (Jan 17)

Trader VIP clubs, 'ping pools' take dark trades to new level
Exclusive venues gain attention in becalmed financial markets; some money managers still skeptical of electronic firms (Jan 16)

Trump anxiety, harassment fallout to dominate Davos forum
U.S. president's surprise visit underscores populist tensions; economic confab chaired for first time by all-female group (Jan 16)

FSOC designation Treasury report: A fundamental shift in approach
New leadership provides the opportunity to reconsider and evaluate crisis-response regulations and improve how the Financial Stability Oversight Council wields its powerful designation authority (Jan 16)
The Cyber Cafe
Cybersecurity news every Friday
Davos elite fear cyberattacks and war
'Cyber-dependency' now more worrying than social polarization; 93% of global leaders expect more political, economic clashes.

How to protect C-level officers from whaling, espionage, and themselves
Top execs make big targets, especially when traveling abroad. Here's how to safeguard your biggest cybersecurity target.
- CIO

U.S. bank regulator flags cyber risks in first threat report
U.S. banks are facing a growing threat from cyberattackers and making defense against them more complex by relying on third-party firms for support, according to Joseph Otting, who took over a key banking regulator in November.
Bank relief bill worries regulator
Senate bill would undo safeguards: FDIC's Hoenig
(Jan 17) -- A bipartisan Senate bill designed to provide relief to community and regional lenders would undo important financial-system safeguards, Federal Deposit Insurance Corp. Vice Chair Thomas Hoenig said in a letter to the Senate Banking Committee chair, the bill's sponsor, and other members of the panel. What concerns Hoenig is a provision of S. 2155 - approved by the committee in December and expected to win Senate passage as early as this month - that would relax the supplemental leverage ratio for big banks. Hoenig also opposes language exempting banks with less than $10 billion in assets from the Volcker rule ban on proprietary trading.

The bill would allow custody banks to exclude central bank reserves from the calculation of the ratio and, therefore, reduce capital. Custody banks are specialized institutions that safeguard the financial assets of a firm or an individual. "Custody banks are integral components of the financial system and because of this they must remain pillars of strength," Hoenig wrote. "They are highly interconnected to the capital markets and relied upon as safe havens in times of stress."

As for the Volcker language, Hoenig said he agrees the burdens of the rule should not be placed onto banks that don't engage in speculative activities. However, he added, the section of the bill as currently written "would severely weaken the safeguards that were designed to protect depositors and taxpayers."
Financial system vulnerability
OFR updates 3Q17 data
(Jan 18) -- The Office of Financial Research updated their Financial System Vulnerabilities Monitor with data from the third quarter of 2017. A starting point for monitoring U.S. financial stability, the FSVM is a heat map of 58 indicators of potential vulnerabilities in the U.S. financial system. The monitor is organized in six categories: macroeconomic, market, credit, solvency and leverage, funding and liquidity, and contagion.
FINRA publishes budget for 1st time
Says it won't raise fees 
(Jan 18) -- The Financial Industry Regulatory Authority says it won't raise member firm fees at this time. FINRA sees 2018 revenue remaining unchanged relative to 2013, the last year they raised member firm fee rates. The decision to publish an overview of their 2018 budget, part of an ongoing organization review, came after receiving feedback from CEO Robert Cook's listening tour. FINRA also identified further expense reductions for 2018 and "will hold senior officer salaries flat again in 2018."
Binge reading disorder
Hand-curated, chosen with love.
Fifty shades of green bank capital
The EU's introduction of a "green supporting" factor for banks that invest in green assets appears to be a great idea. However, once you think about it, you will probably realize that the green supporting factor will never really fly.

15 things leaders should be more cognizant of in the workplace this year
According to a U.S. Equal Opportunity Commission report, there were 12,860 sex-based harassment charges alleged in 2016 and this number has continually grown since 2014.
- Forbes

Fed sets up office to analyze economic impact of rules
New office currently employs four people, expected to grow to eight; team will analyze the economic impact of regulations imposed by the Fed.