In order to understand how the banks made money creating a void and then filling it with what I call a tier 2 yield spread premium, trading withe investors money, and avoiding the trust entirely, you should read the articles relating to the Volcker rule, where “proprietary trading” is frequently put in quotation marks. The banks were essentially treating all investor money as bank money except when it came to allocating losses. When it came to creating fictional profits, those were allocated to the banks — to the obvious detriment of investors and borrowers alike.
That is because many of those trades are fictitious sales from the investment bank to the trust on paper only. They are on paper to justify the investment bank declaring the trade produced a profit when in fact there was no trade at all and the money from investors that should have been with the trust was under the total control of the investment bank.
And the relevance of that is that the investors were thus placed in the positions of direct lenders without documentation while the investment banks and their puppet corporations were left with documentation and no loans made BY THEM.
It IS complicated. But you need to work things out in your head so you can gradually hone down your message into simple analogies and buzz words. This is one more example of how investors and borrowers, getting together, comparing notes and negotiating directly could cure the mortgage crisis and allow the housing market and the entire economy to recover.
For more information call 954-495-9867 or 520-405-1688
The Volcker Rule – the conformance period is approaching
- Michael Best & Friedrich LLP
- July 14 2014
After nearly three and a half years, five federal agencies issued final regulations regarding Section 619 of the Dodd-Frank Wall Street Reform and Consumer Protection Act, more commonly known as the “Volcker Rule.” The Volcker Rule prohibits covered insured depository institutions and companies that control or are affiliated with those institutions (banking entities) from engaging in two main activities: (1) engaging in proprietary trading of certain securities, derivatives, commodity futures and options on these instruments, for their own account; and (2) acquiring or retaining an ownership in, sponsoring or having certain relationships with hedge funds or private equity funds (covered fund). The Volcker Rule also requires that banking entities make a “good faith effort” to start developing and implementing compliance programs and preparing for the various applicable reporting requirements.
The final regulatory rules through which the Volcker Rule will be implemented and enforced (Volcker Regulations) were release in December 2013, and went into effect on April 1, 2014. Banking entities covered by the Volcker Rule will need to implement various programs to address these regulations by July 1, 2014; however, banking entities are not required to be in full compliance with all activities and investments until July 21, 2015. While it has not done so, the Federal Reserve Board has the discretion to further extend the compliance deadline for additional one-year periods to a maximum end-date of July 21, 2017.
Are You A “Banking Entity?” – Coverage of the Volcker Rule
The Volcker Rule applies to any “banking entity.” That term is defined generally to include:
- any “insured depository institution,” meaning any bank or savings association the deposits of which are insured by the FDIC;
- all companies that control insured depository institutions or are otherwise treated as bank holding companies or savings and loan holding companies;
- any company that is treated as a bank holding company for purposes of Section 8 of the IBA (e.g. a foreign bank that has a U.S. branch); and
- any affiliate or subsidiary of the foregoing.
If you fall within this broad definition then, in general, you are subject to all of the requirements of the Volcker Rule with respect to prohibited and permitted activities. However, as discussed below, the compliance requirements of the Volcker Rule vary significantly depending on the size of the banking entity and its level of trading activities.
Prohibition on Proprietary Trading
The Volcker Rule and Regulations prohibit banking entities from engaging in “proprietary trading” of certain debt and equity securities, derivatives, commodities and options on these instruments. Proprietary trading is defined as engaging as principal for the trading account of a banking entity in a transaction to purchase or sell certain financial instruments. The key term “trading account” includes an account used for the purchase or sale of certain financial instruments principally for short-term resale, benefitting from short-term arbitrage profits, or hedging another trading account position. The rule includes a rebuttable presumption that the purchase or sale of a financial instrument by a banking entity is for its “trading account” if the entity holds the instrument for less than 60 days.
The rule and regulations provide for a number of exemptions to its prohibition on proprietary trading, including certain repurchase or reverse repurchase arrangements, underwriting and market making –related activities, securities lending transactions, domestic and non-U.S. government obligations and certain risk-mitigating hedging, including portfolio hedging.
Prohibition on Ownership or Sponsorship Interests in Covered Funds
The Volcker Rule and Regulations also prohibit or restrict a banking entity from acquiring or retaining an ownership interest in, or sponsoring or having certain relationships with a covered fund. By definition, a “covered fund” includes hedge funds and private equity funds, certain commodity pools, and certain asset-backed securitizations (other than loan securitizations). Again, certain exceptions are provided including, foreign public funds, wholly-owned subsidiaries, joint ventures, foreign pension or retirement funds, insurance company separate accounts, bank-owned life insurance, loan securitizations, qualifying asset-backed commercial paper conduits, and qualifying covered bonds.
The Volcker Regulations (which weigh in at a substantial 900 pages in length) impose a number of detailed and highly intricate reporting requirements and compliance programs on covered banking entities. For example, the Volcker Regulations generally require that covered banking entities establish and maintain an internal compliance program that is reasonably designed to ensure and monitor compliance with the Volcker Regulations. Such a compliance program could require CEO attestation to compliance, detailed documentation of covered activities sufficient to allow government regulatory agencies to monitor activities for instances of evasion, and reporting of quantitative measurements related to investments designed to monitor certain trading activities.
While the Volcker Regulations have the potential to be burdensome for covered entities, the final version of the Regulations also seek to reduce the burden of compliance on smaller, less complex banking institutions by limiting their compliance and reporting requirements. In essence, the reporting requirements operate on a relatively sliding scale, with the burden of the requirements increasing based on the size of the banking entity and the scope of the entities participation in regulated activities. Significantly, a banking entity that does not participate in trading activity regulated by the Volcker Rule does not need to establish any reporting or compliance program at all.
The following table summarizes generally the criteria for these compliance programs and the dates by which a banking entity that engages in covered activities must establish a compliance program.
Click here to view table.
Again, the Volcker Rule contains a number of exclusions and exceptions that could shield you from or reduce your compliance requirements. These exceptions, like the Volcker Rule itself, are complex and varied. If you think the Volcker Rule may apply to you, now is the time to begin planning for compliance and to evaluate whether any exceptions apply to your organization.
Filed under: AMGAR, CORRUPTION, discovery, evidence, foreclosure, foreclosure defenses, investment banking, Investor, MBS TRUSTEE, MODIFICATION, Mortgage, Motions, Pleading, securities fraud, Servicer, TRUST BENEFICIARIES | Tagged: actual creditor, documentation without loan, loan without documentation, proprietary trading, standing, tier 2 premium, volcker rule |