Bankruptcy Brief

Analysis: Nine Bankruptcy Code Amendments Included in Consolidated Appropriations Act

At nearly 5,600-pages, the Consolidated Appropriations Act (CAA) that was signed into law on Dec. 27 is reportedly the longest bill ever passed by Congress, according to an analysis on JDSupra.com. In addition to funding the federal government in 2021 and providing COVID-related relief to individuals and businesses, the new law amends the Bankruptcy Code in at least nine respects. Most of the amendments sunset in either one or two years. One of the amendments will become effective only if the Small Business Administration signs off on it.

Commentary: The "New and Improved" PPP Loan Package!

By Thomas J. Salerno
Stinson LLP

On December 23, 2020, Congress passed the Combined Consolidated Appropriations Act, 2021, which includes the Coronavirus Economic Relief for Transportation Services Act and Coronavirus Response and Relief and Relief Supplemental Appropriations Act (H.R. 133) (the "CARES Act II") , which provides for another $284.45 billion in "PPP Second Draw Loans" ("PPP III Loans"). While over four months had passed since the lapse of the prior PPP loan program, struggling businesses throughout the U.S. breathed an audible sigh of relief. As CARES Act II contained numerous provisions related to stimulus and aid availability separate from PPP III Loans. Despite threats of veto, President Trump signed the bill on December 27, 2020. Did CARES Act II "fix" the issue and definitively do away with any future litigation in this area? Of course not. Instead, there is a mixed bag in CARES Act II — some good news for some debtors, bad news for other debtors, and a pretty much sure bet for future litigation concerning the latter.

New Small-Business Stimulus Plan Fails to Address Fraud Risks

The new COVID-19 relief plan for small businesses that President Trump signed this week doesn’t address some weaknesses in the original stimulus legislation that allowed companies with checkered histories to get billions of dollars in payments, the Wall Street Journal reported. The $900 billion pandemic-aid bill includes an additional $284 billion for the Paycheck Protection Program to support small businesses. In the earlier stimulus, 5.2 million small businesses borrowed $525 billion in forgivable loans. Nearly 1,500 companies that received about $2 billion in PPP loans have faced allegations of violating government regulations or of criminal conduct, according to a Wall Street Journal analysis of loan recipients and news sources. Another 432 firms laid off workers after getting approved for nearly $1 billion in loans, according to an analysis of national layoff notices filed mostly by large companies by Good Jobs First, a Washington, D.C.-based nonprofit promoting corporate and government accountability. The government has charged dozens of people in at least 36 complaints related to fraudulently obtaining coronavirus-relief funds, many for allegedly falsifying PPP loan applications and misappropriating the funds, according to a Journal review of Justice Department data. (Subscription required.).

U.S. Unemployment Claims Fell Modestly Last Week

New applications for unemployment assistance fell last week, a sign of modest improvement during a holiday period clouded with uncertainty around impending changes to benefit payments, the Wall Street Journal reported. Weekly initial claims for jobless benefits from regular state programs, a proxy for layoffs, declined by 19,000 to a seasonally adjusted 787,000 in the week ended Dec. 26, the Labor Department said Thursday. That marked a second consecutive decline from the three-month high recorded earlier in December, when virus cases were surging and more jurisdictions were bringing back economic restrictions to control the spread of the coronavirus. Last week’s level remains higher than any recorded before this year, although it is down sharply from a peak of nearly 7 million in late March. The four-week average of claims, which smooths volatile data, rose to the highest level since early October. (Subscription required.).

Pandemic Accelerated Transformation of Retail Industry in 2020

The retail industry was in the midst of a transformation before 2020. But the onset of the pandemic accelerated that change, fundamentally reordering how and where people shop, and rippling across the broader economy, the New York Times reported. Many stores closed for good, as chains cut physical locations or filed for bankruptcy, displacing everyone from highly paid executives to hourly workers. Amazon grew even more powerful and unavoidable as millions of people bought goods online during lockdowns. The divide between essential businesses allowed to stay open and nonessential ones forced to close drove shoppers to big-box chains like Walmart, Target and Dick’s and worsened struggling department stores’ woes. The apparel industry and a slew of malls were battered as millions of Americans stayed home and a litany of dress-up events, from proms to weddings, were canceled or postponed. This year’s civil unrest and its thorny issues for American society also hit retailers. Businesses closed because of protests over George Floyd’s killing by a white police officer, and they reckoned with their own failings when it came to race. The challenges faced by working parents, including the cost and availability of basic child care during the pandemic, were keenly felt by women working at stores from CVS to Bloomingdale’s. And there were questions about the treatment of workers, as retailers and their backers treated employees shoddily during bankruptcies or failed to offer hazard pay or adequate notifications about workplace COVID-19 outbreaks.

Have a Safe and Happy New Year! 

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Lawmakers Race to Finish $900 Billion Covid-19 Aid Package

Lawmakers and the White House face a rapidly approaching deadline to wrap up negotiations on another coronavirus relief bill, racing today to complete the details of the roughly $900 billion package and pass it through Congress before the end of the week, the Wall Street Journal reported. Top Republicans and Democrats are closing in on a relief package that would send another direct check to many Americans, enhance unemployment benefits, provide aid to small businesses and fund the distribution of the Covid-19 vaccine, among other measures. Because they are planning to approve a relief bill alongside a broad government spending package, they are sprinting to finish the relief bill before current government funding expires at 12:01 a.m. Saturday. Forms of unemployment assistance and other relief measures will expire in the coming weeks without congressional action. As of yesterday, lawmakers were still discussing the duration of a $300 weekly boost to unemployment benefits and whether to include $90 billion in emergency aid for the Federal Emergency Management Agency. But negotiations on a long-discussed relief package eased this week when Republicans and Democrats dropped the two most contentious issues from the proposed package: aid for state and local governments, and enhanced liability protections for businesses, schools and health care providers.(Subscription required.)



In related news, ABI yesterday sent a letter to congressional leadership requesting Congress to make it clear in any future amendments or legislation addressing Paycheck Protection Program (PPP) funding that debtors who have filed bankruptcy cases remain eligible for PPP loans, notwithstanding their respective bankruptcy filings. “ABI is not advocating that Congress mandate PPP assistance to any particular borrower, or category of borrowers, in a case pending under the Bankruptcy Code,” ABI Executive Director Amy Quackenboss writes in the letter. “However, it is imperative that bankruptcy debtors remain eligible for PPP funding if they otherwise satisfy the borrowing requirements. PPP funding may facilitate a successful reorganization under the Bankruptcy Code, and it certainly facilitates the PPP’s goals, which include the preservation of paying jobs.” Click here to read ABI’s letter.

Commentary: Bankruptcy Is the Solution to the Student Loan Crisis*

To understand why we have a student loan crisis — and with $1.6 trillion in outstanding student debt, it surely is a crisis — just look at the Bankruptcy Code, according to a Bloomberg commentary. In 1965, Congress passed the Higher Education Act, part of President Lyndon Johnson’s Great Society. On the one hand, the new law established federal grants and loan programs to ease the monetary burden of attending college, especially for disadvantaged students. On the other hand, the bill included rules that made it difficult to discharge a federal student loan in bankruptcy. Over the next four decades, Congress added additional restrictions that made it not just difficult but impossible to shed a federal student loan, no matter how dire a borrower’s circumstances. In 2005, Congress crossed the final frontier: It added privately issued student debt to its no-discharge list. Nearly one out of five former students is in default, according to the Pew Research Center. The student loan burden has been debilitating for millions of people who had hoped that taking on that debt would lead to a better life, only to discover that, for one reason or another, it didn’t. But there is another largely unacknowledged consequence of outlawing the discharge of student loans in bankruptcy: It ushered in a lot of moral hazard, according to the commentary. The student loan industry is built on a similar premise that caused the subprime housing bubble, when brokers sold homes to anyone, knowing that their firms would offload the loans to Wall Street, so they didn’t care whether the borrowers would ever repay the money, according to the commentary. While student loan forgiveness legislation has been floated, the commentary advocates for passing a law that allows student loans to be included in a bankruptcy filing as an obvious compromise. It doesn’t give either side everything it wants, but it gives each of them enough to make it an acceptable solution.



*The views expressed in this commentary are from the author/publication cited, are meant for informative purposes only, and are not an official position of ABI.

Jobless Claims Increase for the Second Week in a Row, Highest Level Since Labor Day

An estimated 885,000 people applied for unemployment aid for the first time last week — a second consecutive week of increased claims, and a high not seen since the end of the summer, as negotiations for stimulus funding continue in Washington, D.C., the Washington Post reported. Economists have warned that a lack of aid for the unemployed and small businesses, since Congress let some stimulus programs expire over the summer, is dragging down the economy, jeopardizing the fragile recovery of the labor market as the country heads into a bleak winter of increasing coronavirus infections. There were 455,000 new claims for the Pandemic Unemployment Assistance program for gig and self-employed workers. And about 20.6 million people were counted on the unemployment rolls as of the week ending Nov. 28, although officials say that number is inflated by duplicate claims and other issues stemming from backlogs in state unemployment systems.

Workers Tap Retirement Savings as a Last Resort

Since the pandemic began rippling through the economy in March, more than 2.1 million Americans have pulled money from retirement plans at the five largest 401(k) plan administrators: Fidelity, Empower Retirement, Vanguard, Alight Solutions and Principal, the New York Times reported. These workers, especially those in hard-hit industries like transportation, manufacturing and health care, have been helped by more flexible withdrawal rules created by the CARES Act. Even with millions unemployed and the economy’s recovery shaky at best, that’s only about 5 percent of the eligible 401(k) and 403(b) clients across all of those companies. But that’s still higher than in a more typical year, when many participants can still generally withdraw money for hardships, albeit under a stricter set of rules. The various federal relief programs put into place — including stimulus payments, more generous unemployment benefits and the suspension of federal student loan payments — have helped curb the damage, retirement experts said. But some of those programs have already run out, or could soon. “As these start to expire, there may be an uptick in withdrawals for households that have been financially impacted,” said David Fairburn, associate partner at Aon, a professional services firm that provides retirement consulting. “For example, maybe an active employee’s spouse had a job loss, so a withdrawal would be helpful to make up for the lost household income.” Usually, pulling out money from a tax-deferred account before age 59½ would set off a 10 percent penalty on top of any income taxes. But under the temporary rules part of the CARES Act, people with pandemic-related financial troubles can withdraw up to $100,000 from any combination of their tax-deferred plans, including 401(k), 403(b), 457(b) and traditional individual retirement accounts, without penalty. The rules apply to plans only if your employer opts in, and they expire on Dec. 30.

For the Retail Industry, 2020 Was a Wild Ride

Changes have been coming to the retail sector for years. But in 2020, with the onslaught of the Covid-19 pandemic, the industry received a ticket to the Fury 325 roller coaster, according to a Wall Street Journal analysis. Perhaps the most surprising part of the 2020 retail experience was that through November, retail sales (excluding gas, auto and food services) rose 6.6 percent from the year-earlier period, according to the National Retail Federation’s analysis of U.S. Census Bureau data. Oddly, 2020 could turn out to be one of the best years in the overall retail sector in the past 20 years. The industry did experience a precipitous dip in April, with a sharp drop in sales of 5.5 percent, including a startling plunge in apparel sales of more than 86 percent. But concurrently, food-and-beverage store revenues were up nearly 27 percent. Losses and gains in these two sectors have been persistent throughout the year, as a dressed-down population focuses on just the essentials for their families and homes. In many cases, traditional or overleveraged retailers struggled to navigate through the uncertainties. More than 27 retailers declared bankruptcy in the first nine months of the year, including Lord & Taylor, JCPenney, Neiman Marcus and J. Crew. In January, before the coronavirus swept across the U.S., just over 15% of retail sales occurred outside of physical stores. That number spiked to about 20 percent of sales in April, and has since leveled back to about 16 percent of sales in the three months ended in September.

Falling Behind on Weekly Rent and Afraid of Being Evicted

Low-budget weekly rental lodgings — furnished units with limited cooking facilities that typically rent for around $200 a week — are often the housing of last resort for people on government assistance or those living from paycheck to paycheck. They usually cannot qualify for more traditional apartments because they have a recent eviction on their credit history or don’t have the money saved for a security deposit, the New York Times reported. Few such residents can afford to hire a lawyer if faced with eviction. In September, the Centers for Disease Control and Prevention imposed a four-month eviction moratorium to prevent landlords from removing tenants who present a signed declaration stating they can’t pay rent because of the pandemic. But the moratorium has sparked confusion when it comes to weekly rentals, which fall into a gray area of the housing market because they function like temporary apartments but are often licensed as motels — which are technically exempt from the moratorium. Taking advantage of the confusion, some owners of weekly rental lodgings aren’t waiting around for the moratorium to expire at year’s end to push out people who cannot pay the rent.

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McConnell Calls for Congress to Focus on Narrow Stimulus

Senate Majority Leader Mitch McConnell (R-Ky.) said that it was “heartening” that Democrats have embraced a smaller price tag for a stimulus package but gave no indication he was willing to raise his own offer to get a deal, Bloomberg News reported. McConnell again called for passing narrowly targeted relief that focuses on priorities that have broad support — such as small business aid and funding for vaccine distribution — while leaving for later debate other elements that Republicans and Democrats disagree on. House Speaker Nancy Pelosi (D-Calif.) and Senate Minority Leader Chuck Schumer (D-N.Y.) yesterday endorsed using a bipartisan $908 billion relief plan as a basis for new talks with Republicans. McConnell has pushed an alternative that’s along the lines of a previous bill of roughly $500 billion that Democrats blocked, calling it inadequate. McConnell today reiterated criticism of Democratic moves to include what he described as non-coronavirus-related items. “It’s been heartening to see a few hopeful signs in the past few days,” he said. “After months of arbitrary attachment to sky-high dollar amounts,” there is now movement “in the right direction.” Pelosi and Schumer had pushed for a $2.4 trillion COVID-19 relief plan before the election, and their shift yesterday prompted welcoming comments from Republicans as well as Democrats. President Donald Trump also expressed optimism. “I believe they’re getting very close to a deal,” he told reporters at the White House, adding that he would “absolutely” support an agreement.

States Race to Craft Their Own Economic Relief Plans

Governors and state lawmakers across the country are racing to authorize millions of dollars in new coronavirus stimulus aid, aiming to plug gaping holes in their local economies before the end of the year, the Washington Post reported. The burst of activity has intensified in recent weeks after months of false starts in Washington, where congressional lawmakers repeatedly have failed to deliver additional support for a growing number of Americans who are still out of work, struggling to pay their bills or facing severe financial straits. Michigan, for example, has sought to extend another round of enhanced payments to its unemployed residents. Minnesota has eyed one-time stimulus checks to locals under financial duress. And Colorado has mounted a wide-ranging effort to help its cash-starved workers and businesses, working on legislative proposals that could help cover rent payments, utility bills and other critical costs. The states’ redoubled stimulus efforts may offer a critical economic lifeline for millions of Americans at a time when many governors are instituting a new round of shutdown orders nationwide. But local leaders say their aid is likely to be short-lived, illustrating their financial constraints — and the urgent need for Congress to adopt a more robust relief package after considerable delay.

U.S. Jobless Claims Remain High at 712,000 as Virus Escalates

The number of Americans applying for unemployment benefits fell last week to a still-high 712,000, the latest sign that the U.S. economy and job market remain under stress from the intensified viral outbreak, the Associated Press reported. Today’s report from the Labor Department said that initial claims for jobless aid dropped from 787,000 the week before. Before the virus paralyzed the economy in March, the number of people applying for unemployment benefits each week had typically amounted to roughly 225,000. The chronically high pace of applications shows that nearly nine months after the pandemic struck, many employers are still slashing jobs. The total number of people who are continuing to receive traditional state unemployment benefits declined to 5.5 million from 6.1 million. That figure is down sharply from its peak of nearly 23 million in May. With layoffs still elevated and new confirmed viral cases in the United States now exceeding 160,000 a day on average, the economy’s modest recovery is increasingly in danger. States and cities are issuing mask mandates, limiting the size of gatherings, restricting restaurant dining, closing gyms or reducing the hours and capacity of bars, stores and other businesses. Many jobless Americans are now collecting checks under two federal programs that were set up this year to ease the economic pain inflicted by the pandemic. But those programs are set to expire the day after Christmas. When they do, benefits will end completely for an estimated 9.1 million unemployed people. The number of people collecting aid under one of those programs — the Pandemic Unemployment Assistance program, which offers coverage to gig workers and others who don’t qualify for traditional benefits — fell by 339,000 to 8.9 million for the week ending Nov. 14.

U.S. Trustee Program Reaches Settlement with McKinsey and Company to Withdraw and Waive its Fees in the Westmoreland Coal Bankruptcy Case

The U.S. Trustee Program (USTP) has entered into a settlement agreement with global consulting firm McKinsey & Company (McKinsey) requiring McKinsey to forego payment of fees in the Westmoreland Coal bankruptcy case pending in the U.S. Bankruptcy Court for the Southern District of Texas, according to a DOJ press release. The agreement, which is subject to review and approval by the bankruptcy court, resolves the USTP’s objection to the adequacy of McKinsey’s disclosures of connections and possible conflicts of interest in the Westmoreland case. The USTP previously reached a $15 million settlement with McKinsey in February 2019 to address past disclosure practices by McKinsey in three bankruptcy cases, including the Westmoreland case. The USTP had objected to McKinsey’s initial application seeking to be retained in the Westmoreland Case, and after the prior settlement McKinsey withdrew that application. McKinsey later made new disclosures in a renewed attempt to be retained in the Westmoreland case. The USTP again objected, alleging that the disclosures remained deficient because McKinsey failed to disclose the connections of all of its affiliates, failed to make adequate disclosures regarding its investments in entities that could create a conflict of interest, and failed to address inconsistencies concerning its disclosure of confidential client connections. Under the terms of the settlement, McKinsey’s application seeking employment in the Westmoreland Case will be withdrawn. As a result, McKinsey will not seek to recover any fees in connection with services rendered in the case that would otherwise be subject to review and approval of the court. While the total amount of fees it is waiving is unknown, McKinsey rendered services throughout the case and likely would have sought approval for, and reimbursement of, millions of dollars in fees and expenses. In addition, McKinsey has for the first time agreed that it will fully disclose all affiliate connections and all confidential client connections in any bankruptcy case in which it seeks to be retained in the future, unless the bankruptcy court orders otherwise.


 

Mnuchin in Talks with Fannie-Freddie Overseer on Rushed Redo

Treasury Secretary Steven Mnuchin said he’s made no decision on actions that might be taken at the end of the Trump administration to free Fannie Mae and Freddie Mac from U.S. control, while raising the possibility that the companies could be released before they are fully capitalized, Bloomberg News reported. Mnuchin, testifying at a House Financial Services hearing, said that he has had discussions about possible moves with Federal Housing Finance Agency Director Mark Calabria, the companies’ regulator. But Mnuchin said he hasn’t made up his mind on whether to do anything, while reiterating that he opposes ending Fannie's and Freddie’s federal conservatorships until they have “significant” capital buffers to protect against losses. “Despite the fact that the director and I are having conversations, we’ve made no decisions at Treasury whatsoever yet," Mnuchin said. "We are contemplating.” Fannie and Freddie have been under government control since the 2008 financial crisis, when the companies piled up steep losses amid the housing crash and needed a taxpayer rescue. They’ve since become profitable again and have started retaining earnings to build up their capital cushions. Still, Fannie and Freddie are far short of the roughly $280 billion that Calabria has demanded they have as fully private companies. During the House hearing, Mnuchin said that the companies could be released from U.S. control before reaching the capital requirement under a consent decree. In such a scenario, the companies would technically exit conservatorship but still have restrictions on some business activities.

Fed Economists Warn of Debt Overhang Problem from Covid Crisis

The COVID-19 crisis could be worse than the Great Recession for companies that had high levels of indebtedness at the start of the outbreak, according to economists at the Federal Reserve Bank of New York, Bloomberg News reported. Firms in industries most affected by the pandemic such as tourism, travel and hospitality could grow as much as 10 percent more slowly than in ordinary times if the current crisis plays out in a similar way to the economic decline of 2007 to 2009, Kristian Blickle and João Santos wrote in a blog post on Tuesday. Research from the two economists shows that companies with higher levels of debt experienced 3 percent slower growth during the Great Recession compared to less-indebted peers. The gap between the two groups is closer to 2 percent in normal conditions. The sharper contraction in growth that could materialize during the Covid-19 crisis is due to the combined effect of record levels of corporate indebtedness at the outset of the pandemic and the sharp revenue declines during the course of 2020, the economists said. Many of America’s most iconic companies — from Boeing Co., Carnival Corp. and Delta Air Lines Inc. to Exxon Mobil Corp. and Macy’s Inc. — aren’t earning enough to cover their interest expenses after borrowing billions of dollars over the past few months to help get them through the coronavirus, according to a Bloomberg analysis. Large debt loads can hamper the ability of companies to borrow more to finance worthwhile investments, a problem economists call debt overhang. To read the full report, please click here.

Census Bureau: Nearly One-Third of U.S. Adults Expect to Lose Employment Income

Roughly a third of U.S. adults expect someone in their household to imminently lose their job or see their pay or hours reduced, according to survey results released yesterday by the Census Bureau, The Hill reported. Almost 31 percent of respondents to the Census Bureau’s Household Pulse Survey conducted Nov. 11 through Nov. 23 said that they expected someone in their household to suffer a loss of employment income. Another 33.2 percent said they expected to face foreclosure or eviction within the next two months, 34.5 percent said they have struggled to pay basic expenses, and roughly 12 percent said there was sometimes or often not enough food to eat in their homes during the week leading into the survey. The latest data from the Census Bureau shows the deep economic turmoil suffered by millions of Americans amid the third wave of the coronavirus pandemic. COVID-19 cases, hospitalizations and deaths have shattered records across the U.S. for months, and the White House has warned that the pandemic could soon overrun the American medical system.

COVID-19 Damage to Social Security to Extend Beyond Pandemic

COVID-19’s impact on America’s older adults is set to outlast the pandemic itself as it wreaks havoc on the Social Security retirement trust fund that millions rely on for benefits, The Hill reported. The nonpartisan Congressional Budget Office projects that in the aftermath of the pandemic, the trust fund will deplete its $2.8 trillion reserve over the next decade unless changes are made. Inaction would lead to cuts of 20 percent or more to benefits starting in 2031. The decreased revenue stream stems in large part from the millions of lost jobs during the pandemic, which has led to fewer people and employers paying into the trust fund. That drop, paired with a scaling back of hours at remaining jobs, has been the biggest blow to the long-term outlook for Social Security, according to a report from the Bipartisan Policy Center (BPC). But COVID-19 has impacted the fund in several other ways. The recession has prompted older workers to retire earlier than they previously expected, meaning that they’re drawing down funds instead of contributing to them. Also, low interest rates mean smaller yields for the bonds held by the Social Security funds. Provisions in the record $2.2 trillion CARES Act passed in March are letting more people dip into their retirement savings funds sooner without penalty, raising concerns among experts that many Americans in the long run will be more reliant on Social Security. An executive order by President Trump allowing employers to defer paying into the fund for several months raised additional concerns, though it required all deferred funds be paid back in 2021, leading few to participate in the program. Depending on how long and slow the recovery is, the trust fund could run out by the late 2020s, the BPC report said.

ABI's Code and Rules Website Updated with Amendments to Rules Effective December 1

Visit law.abi.org to access the U.S. Bankruptcy Code and Federal and Local Rules of Bankruptcy Procedure, integrated and personalized with analysis from insolvency experts. The site has been updated to include amendments effective December 1, 2020.

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Fed Holds Rates Steady and Signals Continued Wariness

Federal Reserve Chair Jerome H. Powell said today that the labor market’s recovery was only halfway completed and that more government support would likely be needed to return the economy to full strength, calling the recent rise in virus cases “particularly concerning,” the New York Times reported. In remarks after the central bank’s November meeting, Powell reiterated that the economic outlook is “extraordinarily uncertain” and pledged to continue supporting growth for as long as needed. Economic progress has exceeded initial expectations amid state and local reopenings, but the recovery remains incomplete, progress is moderating and risks loom ahead. Mr. Powell noted that the U.S. is “a long way from our goals, and we’re halfway there on the labor market recovery, at best.” The Fed is trying to coax the economy back to full health. It left interest rates unchanged at its November meeting, having slashed them to near-zero in March, and it reiterated that it plans to keep them low for the foreseeable future. The central bank has also been buying huge quantities of government-backed bonds — about $120 billion a month, recently — in an attempt to keep markets functioning smoothly and to stimulate demand. Low rates do seem to be powering a recovery, but government spending programs have also been an important driver of the rebound so far, keeping money flowing to businesses and households. Now further economic progress is teetering on a precipice as U.S. coronavirus cases rise and those government support programs run dry.

Analysis: Biden Transition Chief Proposed Limiting Size of Biggest U.S. Banks

A decade ago, Ted Kaufman sought to rein in big banks. Now, he will have a significant role in picking the people who supervise them, according to an analysis in the Wall Street Journal. In 2010, during a brief stint in the Senate, Kaufman led a push to limit the size of U.S. lenders — a move that would have led to the breakup of the biggest banks had it been successful. Kaufman is leading President-Elect Joe Biden’s transition team, giving him a voice in choosing appointees to fill positions across the government, including the Consumer Financial Protection Bureau and the Securities and Exchange Commission. A longtime friend of Biden, Kaufman is seen as a bridge between moderate Democrats and more liberal members of the party, who applaud his long history of seeking tough new rules on the financial-services industry. Even if he doesn’t take a formal role in the administration, Kaufman is likely to continue to have the ear of Biden, people who know him say. Kaufman has taken aim at the revolving door between Wall Street and Washington and was an early critic of the high-frequency trading that he said contributed to the May 2010 stock-market “flash crash.” Yet with Republicans likely to maintain control of the Senate, banking-industry officials are hopeful that Kaufman will refrain from recommending progressive nominees for roles that require Senate approval.

Federal Reserve’s Emergency Loan Programs at Center of Political Fight

A political fight is brewing over whether to extend critical programs that the Federal Reserve rolled out to help keep credit flowing to companies and municipalities amid the pandemic-induced recession, the New York Times reported. The dispute has the potential to roil financial markets, which have calmed significantly since the Fed announced in March and April that it would set up backstops in response to market turmoil spurred by the coronavirus pandemic. Those programs expire on Dec. 31, and it is unclear whether the Trump administration will agree to extend them. Federal Reserve Chair Jerome H. Powell and Treasury Secretary Steven Mnuchin must together decide whether they will continue the programs — including one that buys state and local bonds, another purchasing corporate debt and another that makes loans to small and medium-size businesses. The officials will probably make that decision by early to mid-December, according to a senior Treasury Department official. The Fed might be inclined to keep the efforts going, but Mr. Mnuchin, whose Treasury Department provides the funding backing up the programs, has signaled that he would favor ending the one that buys municipal bonds. And he is under growing pressure from Republicans to allow all five of the Treasury-backed programs to sunset. The programs’ expiration could come at exactly the wrong moment, however, as the U.S. faces an expected surge in coronavirus cases this winter and as fiscal stimulus measures that Congress passed in the spring fade. While lawmakers have toyed with passing a new relief bill before next year during the lame-duck session of Congress, President Trump’s election loss makes the outcome highly uncertain.

Analysis: Covid Crisis Brings Regime Change for World’s Central Banks

Just eight months after they swung into action to avert a crippling depression and credit crunch, central banks are in the uncomfortable position of relying on governments to power fragile economic rebounds, according to an analysis in the Washington Post. The decisions their counterparts make will affect not just the growth outlook for the next few quarters, but could shape central banks’ policy options, and even their credibility, for years to come. Monetary authorities entered the COVID-19 crisis with the least conventional policy space — namely, interest-rate cuts — of any postwar downturn. After pulling down borrowing costs to near or even below zero and deploying massive asset-purchase programs, they are now practically begging governments to step up. Without aggressive fiscal stimulus now, the danger is that economies will develop deep scars that hobble growth over the longer term. That could then leave central banks unable to reset and prepare for the next shock or recession. Monetary policy and fiscal policy are now interdependent. For now, government aid is present, helping to preserve jobs and production capacity. The worry is that it will be withdrawn too soon out of concern to repair public finances, even as the virus continues to rage.

Commentary: How the White House Rolled Back Financial Regulations*

On the campaign trail in 2016, Donald J. Trump promised to roll back regulations he said were stymying American businesses and Wall Street. Once elected, he chose agency heads willing to carry out those promises. For banks and other financial firms, that brought a cast of characters including Treasury Secretary Steven Mnuchin, Federal Reserve Vice Chair Randal K. Quarles and Comptroller of the Currency Joseph Otting, according to a commentary in the New York Times. Working from a blueprint drawn up early in the administration, they and other regulators eased restrictions on the finance industry, including those that had been put in place by the Obama administration after the 2008 financial crisis. Some of the changes were small, but together they amount to a significant regulatory shift. Financial firms now face lesser consequences for taking too much risk or abusing customers, which could pave broader paths to a new financial crisis, critics say. Here’s a look at some of the changes under President Trump. Payday lending: In late 2017, the Consumer Financial Protection Bureau finalized tough new restrictions on payday lending, but a director appointed by Trump, Kathleen Kraninger, took over the bureau in 2018 and delayed the new restrictions from taking effect. This year, she rescinded them. Rent-a-bank rules: Many states have caps on the interest rate that lenders can charge on loans, but lenders can skirt the rule by partnering with a bank in another state — one without rate caps — and having that bank issue its loans. The bank then sells the loan to the lender. Fiduciary rule rollback: The Obama-era Labor Department imposed a rule that would have forced financial advisers and brokers handling retirement and 401(k) accounts to act as “fiduciaries,” but in 2018, a federal appeals court ruled that the agency had overstepped its authority, and the Trump administration didn’t challenge the decision, which killed the rule.



* The views expressed in this commentary are from the author/publication cited, are meant for informative purposes only, and are not an official position of ABI.

U.S. Unemployment Claims Slip but Hold at High Levels

New applications for unemployment benefits fell sharply last week, suggesting that layoffs are easing as the broader economy flashes signs of improvement, the Wall Street Journal reported. Initial claims for jobless benefits, a proxy for layoffs, declined to 709,000 last week from 757,000 a week earlier, the Labor Department said Thursday. While weekly claims have fallen from a peak of near 7 million at the end of March, they remain well above levels of about 200,000 seen before the coronavirus hit this spring. The number of people collecting unemployment benefits through regular state programs, which cover most workers, dropped to 6.8 million for the week ended Oct. 31 from 7.2 million a week earlier. Continuing claims are down significantly from their spring levels, reflecting that many laid-off workers have been recalled to jobs or hired elsewhere. Others, though, have exhausted state benefits, a sign that many are facing long periods of joblessness.

ABI's International Insolvency Forum Next Week to Feature Conversation with President Bill Clinton, Sessions Examining the Implications for Global Restructurings During COVID-19 Pandemic and More

Insolvency experts from around the world will virtually gather to provide their insights on key issues and timely topics pertaining to international practice at ABI’s 2020 International Insolvency Forum. The three-day online conference brings together ABI’s annual International Insolvency & Restructuring Symposium partners — International Insolvency Institute (III), American College of Bankruptcy, TMA Europe, INSOL and IWIRC — and ABI's annual Cross-Border Insolvency Program. Highlighting the event will be President Bill Clinton, 42nd President of the United States, discussing the current political landscape with Bill Brandt of Development Specialists, Inc. Experts will be examining the global restructuring landscape and provide an outlook on the year ahead. The Forum will be a "one-stop shop" for attendees looking for technical sessions covering current international insolvency issues and light-hearted networking opportunities — all from the comfort of their home or office! This program is eligible for up to 10.75/12.5 hours of general CLE/CPE credit. Click here to view the sessions and register.

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