Finance: bank collapses revive uncomfortable memories of 2008 financial crisis
The collapse of Silicon Valley Bank (SVB) in mid-March had major implications for the global banking sector. Signature Bank, another US regional bank, followed two days later. The much larger Credit Suisse then saw its shares plummet by 30 per cent before UBS stepped in to agree a historic government-brokered deal worth $3.25bn.
All of this revived uncomfortable memories of the global financial crisis of 2008. Many pointed the finger of blame at banking regulators then, and some are doing so again now. Jamie Dimon, Chief Executive of JPMorgan Chase, complained that the rules in the US had incentivised banks to build up large portfolios of US Treasury bonds. These lost a good deal of value as interest rates were increased. Lenders ended up with paper losses, leaving investors unimpressed.
However, few believe that history is about to repeat itself. While the banking sector is clearly in trouble, another global financial crisis is not on the way. DeAnne Julius is a senior adviser to the international affairs think-tank Chatham House and a distinguished fellow in its Global Economy and Finance programme. ‘There’s a heightened sense of nervousness, but the preconditions for the beginning of a big financial crisis are not there’, she says. ‘SVB went under for very specific reasons that don’t apply to many other banks. And with Credit Suisse, with hindsight one can see that there were many reasons for investors and bondholders to be much more worried than they actually were.’
That said, events such as these obviously damage confidence in the banking system. If there is enough damage, then there can be a run on the banks, in which large numbers of people all withdraw all of their money at the same time.
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What’s truly unique about the recent collapses is how quickly they occurred. This can, in part, be traced back to the way information can spread like wildfire in the social media age
Shane Pearlman
North American Regional Forum Liaison Officer, IBA Banking Law Committee
‘What’s truly unique about the recent collapses is how quickly they occurred’, says Shane Pearlman, North American Regional Forum Liaison Officer for the IBA Banking Law Committee and a partner at Canadian law firm Borden Ladner Gervais. ‘This can, in part, be traced back to the way information can spread like wildfire in the social media age and the speed and immediacy of the electronic banking system. It no longer takes weeks or months for fears about the failure of a bank to circulate. Similarly, long gone are the days of a customer waiting to go to their bank and standing in line at their branch to withdraw their deposits.’
Once bank runs start, they’re very difficult to stop and can affect any bank with weaknesses. Without the fall of SVB, for example, nothing would have happened to Credit Suisse. ‘They were weak and once investors lose confidence and begin to run any bank with weaknesses may become untrainable’, says Vasso Ioannidou, Professor of Finance at Bayes Business School in London. ‘This is a space to watch.’ Regulators have to move fast. Pearlman thinks that in the US, ‘the regulatory response has been adequate to provide the necessary reassurances to the public’. He believes the banking system generally ‘remains strong and vibrant’.
Julius says that the key lesson from the global financial crisis for central banks was that ‘if you do have the start of a crisis, it’s better to act quickly, get it under control and put a stop to it, rather than wait and see whether you need to act later’. The scope for contagion is too great in today’s world of very integrated financial markets, she adds.
However, Ioannidou warns that while banks’ own weaknesses can cause bank runs, regulatory action to deal with those vulnerabilities can also create problems. Once national supervisors try to contain a developing situation in a home country, ‘they often end up taking difficult decisions that may be needed in that situation but may also have negative externalities on other countries’, she says.
She’s referring to the decision by Swiss regulators to wipe out $17bn of Credit Suisse's Additional Tier 1 (AT1) capital debt under the terms of its takeover by UBS. AT1 bonds are the riskiest type of debt banks can issue, ranking immediately after equity in the event of losses.
That decision highlighted the risks of investing in these securities, forcing European regulators into action to stop a market rout. The European Central Bank, Single Resolution Board and European Banking Authority all affirmed that Eurozone banks would not suffer the same fate; AT1 bondholders would only suffer losses after shareholders have been wiped out.
While this new crisis still has some way to run, the current turmoil may be stabilising. ‘This has already played out in terms of the markets’, says Julius. ‘They’ve come back, so I think the market participants have been reassured. And we’re not seeing meltdown in the stock markets of countries that have had problems. If anything, in the US at least, people have piled into some of the competitor banks, or they’ve gone from smaller banks to bigger banks.’
Dimon is also concerned about the response to the current crisis. In his annual letter to shareholders, he urged regulators to avoid ‘knee-jerk, whack-a-mole or politically motivated responses’. The goal should not be ‘a regulatory regime that eliminates all failure but one that reduces the chance of failure and the odds of contagion’.
Julius feels the same way. ‘At the end of the day, you can regulate and regulate, but banking, by its nature, has a risk involved’, she says. ‘Short of going to central bank money, which then means the central banks control everything, I’m not sure that there is an end in sight to having the occasional blow up.’
Image credit: Who is Danny/AdobeStock.com
IBA celebrates International Women’s Day and urges gender parity
International Women’s Day took place on 8 March and the IBA marked the occasion in several ways.
IBA President Almudena Arpón de Mendívil announced the launch of IBA Women’s Day to tie in with International Women’s Day, in celebration of women legal professionals. This event aimed to inspire and guide the younger generation of female practitioners in their professional careers, with experienced women sharing their paths to reaching senior positions. ‘IBA Women’s Day is a day that I hope will become a much-anticipated annual fixture in our Association’s calendar’, says Arpón de Mendívil.
On 8 March, in collaboration with the IBA Women Lawyers’ Committee (WLC), a webinar chaired by Arpón de Mendívil took place, bringing together prominent female IBA members representing 30 jurisdictions worldwide. In each jurisdiction, in-person events had been arranged to follow the online meeting.
The IBA also published video messages from many leading women lawyers from around the world.
Although in part celebratory, IBA Women’s Day was also focused on bringing attention to issues of inequality within the legal profession. ‘More than 50 per cent of the world’s population and law graduates are women. However, women remain gravely underrepresented at the management level of the legal profession’, notes Lise Lotte Hjerrild, Chair of the WLC. ‘This is crucial to remedy. Let today, as we celebrate women's social, economic, cultural, and political achievements, serve as a reminder that we can do better and thereby obtain a more sustainable and brighter future.’
Addressing gender equality in the legal profession is one of the IBA’s priorities for 2023/2024. Two years ago, on International Women’s Day, the IBA launched the ‘50/50 by 2030’ project – a longitudinal study into gender disparity in law. The project is led by the IBA Legal Policy & Research Unit and the IBA Diversity & Inclusion Council, with support and input from the WLC. Findings for the legal profession in England and Wales, Uganda and Spain have been published and a report on Nigeria is imminent. The project was mentioned on International Women’s Day in an article in The Times newspaper.
Read the news release here
Watch the video message from the IBA Women Lawyers’ Committee here
Podcast: Contentious cryptocurrencies
2022 was a tumultuous year for cryptocurrencies. One of the world's largest crypto exchanges, FTX, collapsed and filed for bankruptcy in November. It wasn’t the only casualty, as other exchanges – as well as crypto hedge funds – also went under during the year. The industry’s reputation has suffered as a result of this and other events.
In this Global Insight podcast, we question whether the crypto industry needs greater regulation, or greater enforcement of regulation – or perhaps both.
Helping to make sense of the issues are:
- David Gerard, a financial journalist and crypto sceptic;
- Andrew Jacobson, Head of Legal at 21Shares, an issuer of cryptocurrency exchange-traded products; and
- Lee Reiners, Policy Director at the Duke Financial Economics Center and a lecturing fellow at Duke Law.
Listen to the podcast here
New report published on professional indemnity insurance
The IBA Bar Issues Commission Policy Committee and the IBA Legal Policy & Research Unit have collaborated on a new report to assist bar associations and regulatory bodies. The IBA International Principles on Professional Indemnity Insurance for the Legal Profession report is a result of a working group created to raise awareness of the concept of professional indemnity insurance in the legal profession.
The report addresses three key issues relating to professional indemnity insurance:
- Should such insurance be mandatory and if so, under what conditions?
- Should whether or not the attorney maintains professional indemnity insurance be mandatorily disclosed? and
- If so, to whom should it be disclosed: the client, the public or a regulatory body?
The working group found there to be little global uniformity as to the requirement of a lawyer to hold professional indemnity insurance and there is no consistency in terms of the extent of the coverage.
Download the report here
Registration opens for IBA Annual Conference 2023
Registration has opened for the IBA Annual Conference 2023, to be held in Paris from 29 October – 3 November. The venue for this highlight of the IBA calendar is the Palais des Congrès.
France’s capital is one of the world’s leading centres for finance, diplomacy, commerce, fashion, gastronomy, science and the arts. Known as ‘the City of Lights’, it’s a major European business hub and the location of the European head office for 75 per cent of large, 500+ employee, multinational companies in Europe – and home to more Fortune 500 companies with European operations than any other city on the continent.
With easy travel links to other European capitals and an abundance of business and networking opportunities on offer, Paris will be a fantastic location for the largest, most prestigious event for international lawyers.
At the Annual Conference, the IBA’s Legal Practice Division and Section on Public and Professional Interest present informative and engaging sessions covering current topics of significance to lawyers around the world.
Attendees can gain up-to-date knowledge of the major developments in their area of law and hear from leading international figures, government officials, general counsel and experts from all practice areas and continents. With access to 5,000+ attendees representing over 2,700 law firms, corporations, governments and regulators from more than 130 jurisdictions, there will be significant opportunities to win more work and referrals at the world’s best networking and business development event for lawyers and law firms. Attendees will be able to build invaluable international connections with leading practitioners worldwide and enhance both their personal profile and their law firm’s reputation, visibility and brand in the international legal world.
Register for the IBA Annual Conference 2023 here
The IBA offers scholarships to attend its Annual Conference. Applications are open for the 2023 event here
IBA launches new Professional Wellbeing Commission
The IBA recently announced the creation of its Professional Wellbeing Commission, a permanent body focused on improving the wellbeing of members of the legal profession around the world. The Commission is part of the IBA’s continuing efforts to prioritise the welfare and wellbeing not only of its members, but of the wider legal community too. The Commission’s objectives include raising awareness of the stigma surrounding discussions of wellbeing; promoting and sharing policies and best practice that promote positive and sustainable wellbeing in the legal profession; and making recommendations to amend the practical and regulatory environment of the legal profession at all levels.
The Professional Wellbeing Commission is a result of the recommendation to create a permanent body within the IBA to build on the ten principles outlined in the 2021 report Mental Wellbeing in the Legal Profession: A Global Study (pictured), which itself was a result of surveys carried out by a task force set up by former IBA President Horacio Bernardes Neto in 2019.
The Co-Chairs of the Commission for the next two years, Steven Richman and Deborah Enix-Ross, said in a joint statement: ‘The wellbeing challenges faced by the profession seem to be growing in the wake of the Covid-19 pandemic. It is vital that any response to this crisis is coordinated at a global level.’
Find out more about the Commission here
IBA establishes new Forum for Government and Public Lawyers
The IBA has established a new Forum for Government and Public Lawyers, to sit within the IBA Section on Public and Professional Interest. The Forum aims to provide a home for government and public lawyers from around the world, to support them and promote networking between other professionals in the public and private sector.
The Forum will be looking at the role and practice of government and public lawyers, including the consideration of public international law developments and the values and objectives that underpin public service.
Forum membership is open to bar associations that are members of the IBA, as well as individual members of the IBA Legal Practice Division and the Section on Public and Professional Interest. The Forum will be relevant to those working in local, national and international government and public bodies, and parliamentary counsel.
View the Forum’s page here.
Donald Trump becomes first former US president to face criminal charges
On 30 March, a grand jury meeting behind closed doors in New York City made history by voting to indict former US president Donald Trump. It’s the first time a former president has been criminally charged and moves the US into uncharted legal territory.
The felony indictment on more than two dozen counts involves alleged hush money paid by Trump’s lawyer Michael Cohen to adult film star Stormy Daniels in the run up to the 2016 presidential election. Trump was scheduled for arraignment in a Manhattan courtroom on 4 April. He issued a statement after the grand jury voted to indict him, calling it a ‘political persecution’ and a ‘witch hunt’. He has denied any relationship with Daniels and disavowed knowledge of the hush money scheme.
‘This is the most current test of a first principle for a free society, whether any person is above the law, and that includes presidents,’ says Tom Devine, Legal Director at the Government Accountability Project, a whistleblower advocacy group in Washington, DC. ‘The trials [in the Daniels case and relating to any other charges against Trump] themselves will determine guilt or innocence but in a democracy, there’s no excuse for trying to stop the fact-finding about crimes just because someone used to be the president.’
This is the most current test of a first principle for a free society, whether any person is above the law, and that includes presidents
Tom Devine
Legal Director, Government Accountability Project
Amid political outcry from Trump’s supporters, legal experts and former prosecutors say his arrest and the prospect of even more serious indictments to come will be a major test for the US court system. Trump is not just the former president. He is the leading contender for the Republican nomination for president in 2024. ‘Law and politics are intersecting in a very sort of unique way,’ says Neama Rahmani, a former government ethics watchdog for the City of Los Angeles and federal prosecutor who is now President of West Coast Trial Lawyers, a personal injury firm. Rahmani is worried the US may be ‘opening up a political Pandora’s box.’
Ronna McDaniel, Chairwoman of the Republican National Committee, called the New York charges a ‘blatant abuse of power’ and ‘political vengeance’. House of Representatives Speaker Kevin McCarthy warned the action had ‘irreparably damaged our country in an attempt to interfere in our presidential election’. Simultaneously, Trump and allies heaped abuse on the Manhattan District Attorney Alvin Bragg. The former president had also warned of ‘potential death and destruction’ if arrested.
Trump faces a host of other legal challenges. A US Department of Justice special counsel is investigating Trump’s role in the 6 January insurrection at the US Capitol and the former president’s removal of top-secret White House documents to his home at Mar-a-Lago. Both situations could generate federal criminal charges.
FBI agents raided Trump’s home at Mar-a-Lago in August and recovered some 20 boxes of files, including classified documents, Trump had removed from the White House when he left office in January 2021. Jason Linder, Secretary of the IBA Business Crime Committee and co-chair of the global investigations and white-collar defence practice at law firm Mayer Brown in Washington, DC, says the documents are likely to be the bigger risk to Trump. ‘Based on what’s publicly known about the Trump documents, I would be in jail if I had done anything like that,’ says Linder, before adding that ‘the president obviously has more authority with respect to the documents.’
Investigators are looking at whether Trump lied to his lawyers when he represented that all classified materials had been returned to the government. A judge in Washington ordered Trump’s attorney Evan Corcoran to turn over notes and voice memos and testify before a grand jury on 24 March. ‘The charge that has the most legs and is likely to result in a federal indictment is the Mar-a-Lago one,’ says Gene Rossi, a former federal prosecutor and a shareholder at law firm Carlton Fields in Washington, DC. Trump, in an interview in late March, called the classified documents case a ‘hoax’ and said he had been transparent and cooperative with the FBI. ‘This is election interference,’ Trump said.
Meanwhile, New York State Attorney General Letitia James has brought a $250m civil lawsuit against Trump and his adult children for allegedly inflating the value of his real estate properties. Trump refers to the lawsuit, as with the Daniels case, as a ‘witch hunt’. The trial is scheduled to begin in October.
Trump also faces a defamation claim by writer E Jean Carroll, who alleges Trump sexually assaulted her in the dressing room of a Bergdorf Goodman department store in the mid-1990s, an accusation Trump denies. That case is due to go to trial in April.
In Georgia, Fulton County District Attorney Fani T Willis has been investigating Trump’s efforts to overturn the results of the 2020 presidential election in the state, which Joe Biden won. Again, Trump denies wrongdoing. Indictments against several unnamed people have been recommended by a special grand jury but Willis has yet to bring charges. Republicans in the state legislature have passed legislation threatening to remove her if she does.
Image credit: Sergii Figurnyi/AdobeStock.com