Mark Roe

An op-ed by Mark Roe. A decade after the global financial crisis, policymakers worldwide are still assessing how best to prevent bank failures from tanking the economy again. Two recent publications – one from the US Department of the Treasury, and another by Federal Reserve economists – provide an indication of where we are. The US Treasury report examined whether to replace the 2010 Dodd-Frank Act’s regulator-led process for resolving failed mega-banks – the Orderly Liquidation Authority (OLA) – with a solely court-based mechanism. The Treasury’s study was undertaken under instructions from President Donald Trump, who was responding to pressure from several Republican congressional leaders – such as Representative Jeb Hensarling of Texas, the chair of the House Financial Services Committee – who advocate replacing regulators with courts.

Twelve of the top 100 most-cited law professors of all time teach at Harvard Law School, according to the Social Science Research Network—and professors Lucian A. Bebchuk and Steven Shavell took the first two spots. An electronic service that aims to make research papers and scholarly articles easily accessible, the SSRN contains over 650,000 documents by more than 360,000 authors...“The rankings reflect the significant impact that the Harvard Law School faculty has on policy research and the legal academy,” Bebchuk wrote in an email. Law Professor Cass R. Sunstein ’75, who ranks in fourth place with 1,484 citations, said he thinks there is a significant benefit to publishing work on SSRN. “I think it’s a good thing if you have a paper that’s published and that could benefit from the comments and criticisms of others,” Sunstein said...The list also includes Law professors Louis Kaplow, Reinier H. Kraakman ’71, Mark J. Roe, Jesse M. Fried ’86, Alma Cohen, Allen Ferrell, John Coates IV, Oren Bar-Gill, and J. Mark Ramseyer.

Banks do pretty well under the tax bill unveiled Thursday: it puts them on track for big tax cuts yet lets the firms avoid some of the biggest potential downsides of the overhaul. At a 20% corporate tax rate, banks stand to be the among the biggest winners from tax reform, according to S&P Global Market Intelligence...The legislation proposed by the House Ways and Means Committee appears to let banks sidestep that issue, though. It does so by limiting the deductibility for companies that spend more money on interest than they take in, said Mark Roe, a professor at Harvard Law School. Banks by and large bring in far more in interest than they pay out.

An op-ed by Mark Roe. It is considering replacing it with a solely court-based mechanism, which would be a mistake of potentially crisis-size proportions. Yes, creating a more streamlined bankruptcy process can reduce the decibel level of a bank’s failure and bankruptcy judges are experts at important restructuring tasks, but there are critical factors that cannot be ignored. Restructuring a mega-bank requires pre-planning, familiarity with its strengths and weaknesses, knowledge of how to time the bankruptcy properly in a volatile economy and the capacity to coordinate with foreign regulators.

Bankruptcy protections tailored to large financial institutions in crisis are back on the agenda in Congress, but using Chapter 11 in these situations has its drawbacks, some scholars and practitioners say. Bipartisan legislation passed by the House and now wrapped into a larger appropriations measure may improve its chances in the Senate if it should get there...Mark J. Roe, a professor at Harvard Law School, believes so strongly that bankruptcy alone can’t handle a financial crisis from collapsed banks that he and co-author Jeffrey Gordon of Columbia Law School wrote congressional leaders. Their May 23 letter was endorsed by 120 financial market and bankruptcy academics...“To repeal OLA and its supporting provisions would be a dangerous error,” Roe and Gordon state in the letter. FIBA in its current state, however, doesn’t repeal OLA. One of the main problems with FIBA is that it “doesn’t allow the regulators to start the bankruptcy,” Roe told Bloomberg BNA July 14.

An op-ed by Mark Roe. One of the major reforms to avoid the recurrence of the severity of the financial crisis was a set of mechanisms by which the regulators could wind down failed banks or restructure them if they were still viable. The House of Representatives is set to vote to repeal this measure and replace it with a bankruptcy that only the bankers themselves could decide to enter. These are dangerous actions that can risk turning a tumultuous bank failure into a deep and full financial crisis, like that of the 2008-9 financial panic. Bankruptcy alone cannot handle a financial crisis emanating from collapsed banks. Adding a robust bankruptcy channel makes much sense. But repealing the regulatory-led system and replacing it with bankruptcy is unwise. Replacing it with the narrow, limited bankruptcy structure moving forward in the House is exceedingly unwise.

When the next financial crisis hits — an event that may be years or decades away — we will learn whether this Congress and the president drew the right lessons from the 2008-09 financial crisis. Congress is arguing over whether government can avoid “bailouts” of large financial institutions and still prevent a full-blown crisis. With all of President Trump’s trials and tribulations, hardly anyone is paying attention... A letter from 122 law professors and economists, led by Jeffrey N. Gordon of Columbia Law School and Mark J. Roe of Harvard Law School, argued that the House proposal is unworkable and could trigger the panic that the legislation aimed to avoid.

More than 100 bankruptcy scholars, including Nobel prize winners and former Federal Reserve governors, are urging Congress not to undo the orderly liquidation authority, the provision of the Dodd-Frank financial reform bill meant to protect the U.S. economy from a bank collapse as bad as Lehman Brothers', or worse. The group is calling the proposed action currently before the U.S. House of Representatives "a grave mistake." The letter was written by Jeffrey Gordon of Colombia Law School and Mark Roe of Harvard Law School and signed by Nobel prize winners Oliver Hart and Peter Diamond, former Federal Reserve governors and the so-called father of modern banking theory, Douglas Diamond.

An op-ed by Mark Roe. The liberal West heaved a collective sigh of relief when the results of the first round of the French presidential election came in. After leading in the polls for weeks, Marine Le Pen of the far-right National Front ended up in second place, while Emmanuel Macron, a centrist political independent, finished first. Macron, the fresh face of Europe’s democratic center at just 39 years old, is expected to prevail handily in the second-round runoff on May 7. With Macron’s victory in France following Dutch voters’ rejection of the right-wing populist Geert Wilders earlier this year, most observers are treating the result as another rebuke to the populist revolt that fueled the United Kingdom’s Brexit referendum and US President Donald Trump’s election in 2016. Many seem convinced that the populist tide has crested.

An op-ed by Mark Roe. The 2008-2009 financial crisis exposed a serious weakness in the global financial system’s architecture: an overnight market for mortgage-backed securities that could not handle the implosion of a housing bubble. Some nine years later, that weakness has not been addressed adequately. When the crisis erupted, companies and investors in the United States were lending their extra cash overnight to banks and other financial firms, which then had to repay the loans, plus interest, the following morning. Because bank deposit insurance covered only up to $100,000, those with millions to store often preferred the overnight market, using ultra-safe long-term US Treasury obligations as collateral.

The six largest U.S. banks could see annual profit jump by an average of 14 percent if President Donald Trump delivers on his promise to cut corporate taxes. The lenders, which stand to benefit more than other industries because they typically have fewer deductions, could save a combined $12 billion a year, according to data compiled by Bloomberg. Trump has called for cutting the corporate tax rate to 15 percent from 35 percent...While the cost of borrowing has been low since 2008, interest expenses can be much higher. Banks incorporate net-interest income -- interest earned on assets less interest paid on deposits and other debt -- in their revenue calculations. Revenue would balloon if interest expenses were excluded from this calculation. "Without the interest-expense deduction, many mainstream banks would go out of business," said Mark Roe, a professor at Harvard Law School. "They'd be paying tax on gross revenue, not profits."

An op-ed by Mark Roe...Since the financial crisis, regulators in the United States and elsewhere have been preparing banks to weather a banking crisis like that of 2008 and 2009. They are now justifiably more confident that a troubled bank can be restructured effectively, and that depositors and other short-term creditors would not trigger a collapse by hastily withdrawing their money. Long-term creditors, they are confident, would take the hit. But disturbing evidence has emerged suggesting that, overall, the global financial system is no safer today than it was in 2007. When the 2008 global financial crisis erupted, America’s red-hot housing market had been operating as a money market for years. Companies’ chief financial officers (and others with excess, temporary cash) were using their cash to purchase securities backed by pools of mortgages, which they would sell back to the bank the following day, reaping attractive interest gains. This overnight market was – and remains – huge, rivaling the size of the entire deposit-based banking system.

When a company reorganizes itself through a bankruptcy, is it the same company? And if so, is it liable for alleged wrongdoing committed by the previous version of itself? These are questions raised by General Motors’ efforts to dodge hundreds of lawsuits related to a potentially fatal ignition-switch flaw in millions of its older sedans...Mark Roe, a Harvard Law School professor who specializes in corporate bankruptcy, says GM’s use of the 363 Sale process doesn’t conform to the reason why the doctrine exists. “The GM sale was not a true third-party sale,” Roe told Salon. “It was General Motors selling to a reorganized version of itself. The factories were the same, the employees were the same. There isn’t the same reason to protect a third-party buyer.”

An op-ed by Mark Roe. An often-heard refrain, increasingly voiced in US politics, is that corporate America is excessively influenced by short-term stock-market considerations. While the US presidential election is not particularly focused on policy at the moment, the campaign will soon end, at which point people will govern and policies will be adopted. Given that both Republicans and Democrats have criticized short-termism, it is possible that some of those policies might aim to address it. They are unlikely to make any difference. Not only has the problem of short-termism been woefully exaggerated, but the policy proposals for addressing it are severely lacking. Consider Democratic presidential nominee Hillary Clinton’s proposal – which Vice President Joe Biden has endorsed – to use the capital gains tax to encourage shareowners to hold on to their stock for a longer time.

An op-ed by Mark Roe and David Skeel Jr:  The House of Representatives is pushing to enact a bankruptcy act for banks. It has passed a bankruptcy-for-banks bill, sent it to the Senate, and now embedded it in its appropriations bill, meaning that if Congress is to pass an appropriations bill this year, it may also have to enact the bankruptcy-for-banks bill. Is that a good idea? In concept, bankruptcy for banks makes sense: Why should they get the benefits of government bailouts that industrial companies rarely receive? The answer usually is that a bank failure can bring down the economy, while an industrial failure cannot. But if banks can be reorganized in bankruptcy, the possibility of a win-win result is in the cards. We could restructure a big bank to stop it from damaging the economy, but without having to bail it out. The two of us support this concept — and indeed one of us worked extensively with the Hoover Institution to draft such a bankruptcy proposal. But the bill in play has several dangerous features that could make bailouts more likely, not less likely.

Perversely enough, corporate bankruptcy is not cheap. Protracted fights between duelling bondholders, banks, trade creditors and the companies involved often maximise value only for lawyers. So, to avoid costly and inefficient Chapter 11 brawls, troubled businesses have been increasingly choosing to restructure their balance sheets through out-of-court bond exchanges. Now, though, even these bond exchanges may be threatened by an esoteric court battle over a Depression-era law. According to the US Trust Indenture Act of 1939, which governs the terms of bonds, the right of bondholders to receive principal and interest cannot be altered without their unanimous consent...Harvard Law School bankruptcy expert Mark Roe recently wrote that TIA decisions of late have correctly solved the problem of bondholder coercion. Ultimately, however, he believes Congress or the Securities & Exchange Commission should relax the requirement for unanimity to allow changes to bond terms. Otherwise, we can expect the lawyers — in Chapter 11 bankruptcy cases, or in ordinary court cases figuring out what counts as payment impairment — to become much busier.

An op-ed by Mark Roe. Jeb Hensarling, the Republican chair of the Financial Services Committee in the US House of Representatives, delivered a wide-ranging speech last month at the Economic Club of New York, proposing to overhaul US financial regulation. Hensarling blamed regulators and excused Wall Street for the financial crisis; condemned government-funded bank bailouts; characterized the 2010 Dodd-Frank financial-reform legislation as a power grab; and called for increased congressional oversight of the Federal Reserve. Most of Hensarling’s proposals – even backed, as they now are, by a partisan-sounding document from the House Banking committee and a favorable Wall Street Journal review – are political nonstarters...They have already been sharply criticized by Democrats as being too risky and pro-bank – which they largely are. That said, one of Hensarling’s ideas is well worth exploring: an “off-ramp,” as he put it, from Dodd-Frank regulation for banks that willingly increase their available capital.

A new Senate bill tries to make it just a little bit harder for activist hedge funds to exploit healthy companies rather than invest in their future. Sen. Tammy Baldwin (D-Wis.) and Jeff Merkley (D-Ore.) introduced the Brokaw Act on Thursday, which would strengthen disclosure requirements for activist hedge funds that buy parts of companies. Activist hedge funds, unlike other hedge funds, become deeply involved in the companies in which they buy a stake, steering them in a direction that most benefits the fund...Defenders of the bulk of activist interventions, like Harvard Law School’s Mark Roe, argue that its downsides are exaggerated, and that the dearth of corporate investment represents a prudent response to a “weak economy.”