Too Big to Fail — U.S. Banks’ Regulatory Alchemy: Converting an Obscure Agency Footnote into an “At Will” Nullification of Dodd-Frank’s Regulation of the Multi-Trillion Dollar Financial Swaps Market

The multi-trillion-dollar market for, what was at that time wholly unregulated, over-the-counter derivatives (“swaps”) is widely viewed as a principal cause of the 2008 worldwide financial meltdown. The Dodd-Frank Act, signed into law on July 21, 2010, was expressly considered by Congress to be a remedy for this troublesome deregulatory problem. The legislation required the swaps market to comply with a host of business conduct and anti-competitive protections, including that the swaps market be fully transparent to U.S. financial regulators, collateralized, and capitalized. The statute also expressly provides that it would cover foreign subsidiaries of big U.S. financial institutions if their swaps trading could adversely impact the U.S. economy or represent the use of extraterritorial trades as an attempt to “evade” Dodd-Frank. In July 2013, the CFTC promulgated an 80-page, triple-columned, and single-spaced “guidance” implementing Dodd-Frank’s extraterritorial reach, i.e., that manner in which Dodd-Frank would apply to swaps transactions executed outside the United States. The key point of that guidance was that swaps trading within the “guaranteed” foreign subsidiaries of U.S. bank holding company swaps dealers were subject to all of Dodd-Frank’s swaps regulations wherever in the world those subsidiaries’ swaps were executed. At that time, the standardized industry swaps agreement contemplated that, inter alia, U.S. bank holding company swaps dealers’ foreign subsidiaries would be “guaranteed” by their corporate parent, as was true since 1992. In August 2013, without notifying the CFTC, the principal U.S. bank holding company swaps dealer trade association privately circulated to its members standard contractual language that would, for the first time, “deguarantee” their foreign subsidiaries. By relying only on the obscure footnote 563 of the CFTC guidance’s 662 footnotes, the trade association assured its swaps dealer members that the newly deguaranteed foreign subsidiaries could (if they so chose) no longer be subject to Dodd-Frank. As a result, it has been reported (and it also has been understood by many experts within the swaps industry) that a substantial portion of the U.S. swaps market has shifted from the large U.S. bank holding companies swaps dealers and their U.S. affiliates to their newly deguaranteed “foreign” subsidiaries, with the attendant claim by these huge big U.S. bank swaps dealers that Dodd-Frank swaps regulation would not apply to these transactions. The CFTC also soon discovered that these huge U.S. bank holding company swaps dealers were “arranging, negotiating, and executing” (“ANE”) these swaps in the United States with U.S. bank personnel and, only after execution in the U.S., were these swaps formally “assigned” to the U.S. banks’ newly “deguaranteed” foreign subsidiaries with the accompanying claim that these swaps, even though executed in the U.S., were not covered by Dodd-Frank. In October 2016, the CFTC proposed a rule that would have closed the “deguarantee” and “ANE” loopholes completely. However, because it usually takes at least a year to finalize a “proposed” rule, this proposed rule closing the loopholes in question was not finalized prior to the inauguration of President Trump. All indications are that it will never be finalized during a Trump Administration. Thus, in the shadow of the recent tenth anniversary of the Lehman failure, there is an understanding among many market regulators and swaps trading experts that large portions of the swaps market have moved from U.S. bank holding company swaps dealers and their U.S. affiliates to their newly deguaranteed foreign affiliates where Dodd- Frank swaps regulation is not being followed. However, what has not moved abroad is the very real obligation of the lender of last resort to rescue these U.S. swaps dealer bank holding companies if they fail because of poorly regulated swaps in their deguaranteed foreign subsidiaries, i.e., the U.S. taxpayer. While relief is unlikely to be forthcoming from the Trump Administration or the Republican-controlled Senate, some other means will have to be found to avert another multi-trillion-dollar bank bailout and/or a financial calamity caused by poorly regulated swaps on the books of big U.S. banks. This paper notes that the relevant statutory framework affords state attorneys general and state financial regulators the right to bring so-called “parens patriae” actions in federal district court to enforce, inter alia, Dodd- Frank on behalf of a state’s citizens. That kind of litigation to enforce the statute’s extraterritorial provisions is now badly needed

Detection and verification of malting quality QTLs using wild barley introgression lines

A malting quality quantitative trait locus (QTL) study was conducted using a set of 39 wild barley introgression lines (hereafter abbreviated with S42ILs). Each S42IL harbors a single marker-defined chromosomal segment from the wild barley accession ‘ISR 42-8’ (Hordeum vulgare ssp. spontaneum) within the genetic background of the elite spring barley cultivar ‘Scarlett’ (Hordeum vulgare ssp. vulgare). The aim of the study was (1) to verify genetic effects previously identified in the advanced backcross population S42, (2) to detect new QTLs, and (3) to identify S42ILs exhibiting multiple QTL effects. For this, grain samples from field tests in three different environments were subjected to micro malting. Subsequently, a line × phenotype association study was performed with the S42ILs in order to localize putative QTL effects. A QTL was accepted if the trait value of a particular S42IL was significantly (P < 0.05) different from the recurrent parent as a control, either across all tested environments or in a particular environment. For eight malting quality traits, altogether 40 QTLs were localized, among which 35 QTLs (87.5%) were stable across all environments. Six QTLs (15.0%) revealed a trait improving wild barley effect. Out of 36 QTLs detected in a previous advanced backcross QTL study with the parent BC2DH population S42, 18 QTLs (50.0%) could be verified with the S42IL set. For the quality parameters α-amylase activity and Hartong 45°C, all QTLs assessed in population S42 were verified by S42ILs. In addition, eight new QTL effects and 17 QTLs affecting two newly investigated traits were localized. Two QTL clusters harboring simultaneous effects on eight and six traits, respectively, were mapped to chromosomes 1H and 4H. In future, fine-mapping of these QTL regions will be conducted in order to shed further light on the genetic basis of the most interesting QTLs