Who’s Down with OCC(‘s Definition of “Banks”)?
by | posted in: Bankruptcy, Bankruptcy Administration and Jurisdiction, Chapter 11, Financial Firms and Safe Harbors | 0

By Matthew A. Bruckner (Howard University School of Law)

Matthew A. Bruckner

The number and importance of fintech companies, such as Venmo, CashApp, SoFi, Square, PayPal, and Plaid, continue to rise. As they’ve expanded, some fintech companies have considered it useful to pursue bank charters. For example, Figure, Varo and SoFi have all received at least preliminary approval for a traditional national bank charter.

However, the Office of the Comptroller of the Currency (the OCC) has decided to offer a more limited form of bank charter—a special purpose national bank charter. And it’s been offering these so-called fintech charters to entities that are, at best, bank-like.

Other regulators, such as the New York State Department of Financial Services and the Conference of State Bank Supervisors, have been none too happy about this development. Both have repeatedly sued the OCC, claiming that the charter oversteps the OCC’s authority. That litigation has centered on whether these fintech companies are sufficiently bank-like to obtain an OCC charter. So far, the OCC has successfully fended off litigation because of plaintiff’s lack of standing, but further substantive litigation seems exceedingly likely.

In a new article, I explore the question of whether the OCC’s decision to grant bank charters to fintech companies makes them banks for bankruptcy purposes. The question matters because banks are ineligible for bankruptcy relief. This Article considers the legal and policy arguments that are likely to be presented to bankruptcy judges about whether special purpose national banks are banks within the meaning of the Bankruptcy Code. I conclude that bankruptcy judges are likely to disregard the OCC’s interpretation and conclude that special purpose national banks are not banks for bankruptcy purposes.

As non-banks, special purpose national banks are bankruptcy-eligible. This raises a host of issues that I address in this Article. These include that, in some cases, a special purpose national bank will be able to rush to bankruptcy court to take advantage of the automatic stay if the OCC tries to revoke its charter. Also, the bankruptcy process may supersede the OCC’s newly-created (and never yet used) special purpose national bank liquidation proceedings.

These and other issues are explored in more detail in the Article, which can be found here.

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Note: This is the Harvard Law School Bankruptcy Roundtable’s last scheduled post for the summer of 2022.  The BRT intends to resume posting around mid-September.  The BRT wishes all its readers an enjoyable remainder of the summer!

 

Mandatory Contractual Stay Requirements for Qualified Financial Contracts
by | posted in: Derivatives, Financial Firms and Safe Harbors | 0

By Erika D. White and Donald S. Bernstein of Davis Polk & Wardwell LLP.

The U.S. banking agencies have issued rules that require U.S. G-SIBs and the U.S. operations of foreign G-SIBs to amend their swaps, repurchase agreements and other qualified financial contracts (QFCs) to include certain provisions designed to mitigate the risk of destabilizing close-outs of QFCs in the event the G-SIB enters resolution. The rules are part of a package of reforms implemented by the industry, Congress and the U.S. banking agencies since the financial crisis in an attempt to ensure that the largest financial institutions can be resolved in an orderly manner. Specifically, the rules seek to (1) mitigate the risk that the FDIC’s stay-and-transfer powers with respect to QFCs under Title II of the Dodd-Frank Act and the Federal Deposit Insurance Act may not be recognized and given effect outside of the United States and (2) improve the likelihood of success of a single-point-of entry resolution strategy under the Bankruptcy Code by limiting the ability of counterparties to terminate their QFCs with a solvent and performing operating entity based on cross-defaults triggered by the bankruptcy of the operating entity’s parent or other affiliate. The QFC Stay Rules do not, however, affect the rights of counterparties to terminate QFCs under the safe harbor provisions of the Bankruptcy Code in the event the operating subsidiary itself were to enter bankruptcy proceedings.

 

The full visual memo is available here.