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

A Multi-Site Analysis of the Prevalence of Food Insecurity in the United States, before and during the COVID-19 Pandemic

Background: The coronavirus disease 2019 (COVID-19) pandemic profoundly affected food systems including food security. Understanding how the COVID-19 pandemic impacted food security is important to provide support and identify long-term impacts and needs. Objective: The National Food Access and COVID research Team (NFACT) was formed to assess food security over different US study sites throughout the pandemic, using common instruments and measurements. This study presents results from 18 study sites across 15 states and nationally over the first year of the COVID-19 pandemic. Methods: A validated survey instrument was developed and implemented in whole or part through an online survey of adults across the sites throughout the first year of the pandemic, representing 22 separate surveys. Sampling methods for each study site were convenience, representative, or high-risk targeted. Food security was measured using the USDA 6-item module. Food security prevalence was analyzed using ANOVA by sampling method to assess statistically significant differences. Results: Respondents (n = 27,168) indicate higher prevalence of food insecurity (low or very low food security) since the COVID-19 pandemic, compared with before the pandemic. In nearly all study sites, there is a higher prevalence of food insecurity among Black, Indigenous, and People of Color (BIPOC), households with children, and those with job disruptions. The findings demonstrate lingering food insecurity, with high prevalence over time in sites with repeat cross-sectional surveys. There are no statistically significant differences between convenience and representative surveys, but a statistically higher prevalence of food insecurity among high-risk compared with convenience surveys. Conclusions: This comprehensive study demonstrates a higher prevalence of food insecurity in the first year of the COVID-19 pandemic. These impacts were prevalent for certain demographic groups, and most pronounced for surveys targeting high-risk populations. Results especially document the continued high levels of food insecurity, as well as the variability in estimates due to the survey implementation method

Downgrading Recent Estimates of Land Available for Biofuel Production

Recent estimates of additional land available for bioenergy production range from 320 to 1411 million ha. These estimates were generated from four scenarios regarding the types of land suitable for bioenergy production using coarse-resolution inputs of soil productivity, slope, climate, and land cover. In this paper, these maps of land availability were assessed using high-resolution satellite imagery. Samples from these maps were selected and crowdsourcing of Google Earth images was used to determine the type of land cover and the degree of human impact. Based on this sample, a set of rules was formulated to downward adjust the original estimates for each of the four scenarios that were previously used to generate the maps of land availability for bioenergy production. The adjusted land availability estimates range from 56 to 1035 million ha depending upon the scenario and the ruleset used when the sample is corrected for bias. Large forest areas not intended for biofuel production purposes were present in all scenarios. However, these numbers should not be considered as definitive estimates but should be used to highlight the uncertainty in attempting to quantify land availability for biofuel production when using coarse-resolution inputs with implications for further policy development