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Speaker 1: This is Bloomberg Law with June Grosseol from Bloomberg Radio.

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Speaker 2: Nippon Steele is standing firm on its plans to acquire

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Speaker 2: US Steel, with both companies jointly filing a federal lawsuit

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Speaker 2: against the Biden administration in a last ditch effort to

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Speaker 2: preserve the nearly fifteen billion dollar merger. President Biden blocked

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Speaker 2: the deal last week, citing a risk to national security,

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Speaker 2: but the White House never explained how the deal with

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Speaker 2: the Japanese company would threaten national security.

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Speaker 3: This is about a domestically owned operated steel industry, and

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Speaker 3: we're talking about for our national security, of course, but

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Speaker 3: also our supply chain, a resilient supply chain, and so

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Speaker 3: that's what the President wanted to focus on.

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Speaker 2: The companies say that the review by Siphius, the Committee

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Speaker 2: on Foreign Investment in the United States, was a sham

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Speaker 2: and that Biden blocked the deal for purely political reasons,

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Speaker 2: that is, to gain favor with union steel workers in

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Speaker 2: Pennsylvania during his re election bid. The President had announced

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Speaker 2: his opposition to the deal in March, before the Scifius

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Speaker 2: review even began, and in April at the US steel Workers'

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Speaker 2: headquarters in Pittsburgh. Biden made this promise to the union workers.

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Speaker 4: US still has been an iconic American company for more

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Speaker 4: than a century, and it should remain a totally American company,

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Speaker 4: American owned, American operated by American union steer workers, the

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Speaker 4: best of the world, and that's going to happen, I

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Speaker 4: promise you.

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Speaker 2: Joining me is John Kabilo, a Washington, DC attorney who

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Speaker 2: specializes in cross border transactions. John. Since nineteen ninety, only

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Speaker 2: eight other foreign transactions have been blocked by presidents, according

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Speaker 2: to the Congressional rect Service, and here President Biden reportedly

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Speaker 2: went against his top national security aids in blocking the

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Speaker 2: sale to a Japanese company, even though Japan is a

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Speaker 2: longstanding ally of our country.

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Speaker 1: Right, it is extraordinarily rare for a president to formally

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Speaker 1: block any investment via sytheist I think it's unprecedented that

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Speaker 1: a president would block a transaction like this, an investment

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Speaker 1: coming from an allied nation, a critical allied nation, and

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Speaker 1: in particular where there's no clear national security threat posed

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Speaker 1: by the investment.

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Speaker 2: I'm confused about what Biden says is a national security threat.

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Speaker 2: Is it a national security threat as you know the

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Speaker 2: average person might see it? Or is it a threat

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Speaker 2: to the domestic steel industry.

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Speaker 1: That's a great question, and part of that gets at

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Speaker 1: the evolution of pytheists over the years. You know, ten, fifteen,

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Speaker 1: twenty years ago, things that were thought of as as

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Speaker 1: quote unquote national security issues that really was a limited

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Speaker 1: set of things, and it related to weapons, systems, and

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Speaker 1: telecommunications networks in big pretty clearly strategic assets in the

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Speaker 1: United States. It is true that the notion of national

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Speaker 1: security has expanded some over time, and now it includes

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Speaker 1: things like the personal data of US citizens. Certainly software

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Speaker 1: and things like that have been lumped into this concept

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Speaker 1: of things that can cause national security concerns. Steel itself

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Speaker 1: obviously is useful to the military, but there's no evidence

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Speaker 1: that in this transaction, Knepon Steel was going to do

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Speaker 1: anything other than expand production in the United States and

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Speaker 1: bring more investment and frankly better steelmaking technology into the

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Speaker 1: United States. So it's hard to say that there's any

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Speaker 1: sort of threat to steelmaking in the United States because

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Speaker 1: of the transaction, And ultimately it looks like it boils

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Speaker 1: down to just kind of a US centric notion that

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Speaker 1: this company that's an iconic company in the United States,

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Speaker 1: it should be owned by US persons and not owned

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Speaker 1: by a foreign company. And that's really not at all

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Speaker 1: what Syphius was set up to do. And so what

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Speaker 1: we're looking at is the President is sort of abusing

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Speaker 1: his authorities under Scythius to achieve a political outcome that.

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Speaker 2: Sort of echoes some of the claims the steel companies

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Speaker 2: are making in their lawsuit that argues that Biden violated

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Speaker 2: the Constitution in blocking the merger. Tell us more about

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Speaker 2: their arguments.

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Speaker 1: So Syphius is an authority. It's under the Defense Production

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Speaker 1: Act of nineteen fifty and its authorities were just expanded

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Speaker 1: recently in twenty eighteen. But really what the law says

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Speaker 1: is that first and foremost, the US is intended to

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Speaker 1: have an open investment environment that allows foreign re investment

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Speaker 1: into the United States. And what Syphius is empowered to

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Speaker 1: do is review investments from foreign parties. Syphius has the

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Speaker 1: ability to approve those transactions, but if a transaction may

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Speaker 1: pose a threat to the US national security, then Syphius

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Speaker 1: can negotiate conditions and require an investor to comply with

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Speaker 1: whatever conditions it needs before it approves the transaction. Only

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Speaker 1: in the rarest of circumstances. If there's a threat that

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Speaker 1: is so great and CIFIUS can't find a way to

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Speaker 1: solve the threat, then it goes to the president, and

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Speaker 1: the president has the authority to block the transaction. And

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Speaker 1: so with that is background, what the lawsuit essentially is

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Speaker 1: saying is that the process and the requirements necessary for

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Speaker 1: a president to block the transaction were never followed. Before

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Speaker 1: Sophius even began to review the transaction, President Biden, vice

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Speaker 1: President Harris, and Secretary Yellen had already gone public saying

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Speaker 1: that the transaction should not go through, that US Steel

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Speaker 1: needed to remain domestically owned, and I believe Biden even

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Speaker 1: told the steel workers that he guaranteed that the transaction

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Speaker 1: was not going to go through. And again, this is

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Speaker 1: before the SCIFIAT process had started. And it's important to

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Speaker 1: know that what the SIFIAS process does is it brings

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Speaker 1: thirteen federal agencies together. They look at extensive information that's

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Speaker 1: provided about the transaction by the parties. Every member agency

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Speaker 1: on the committee has the ability to ask questions over

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Speaker 1: a lengthy review process. So it's a detailed fact finding mission.

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Speaker 1: And as they're doing fact finding, they're also sort of

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Speaker 1: assessing what the national security issues might be first of all,

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Speaker 1: and then second of all, if they do have national

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Speaker 1: security concerns, how might they go about solving those concerns.

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Speaker 1: And it really is a burdens and process for the parties.

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Speaker 1: It's a detail oriented process, and kind of counterintuitively, it's

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Speaker 1: also a constructive process. You know, Syphius is trying to

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Speaker 1: find facts that are meaningful to it, but at the

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Speaker 1: same time it's trying to figure out a path forward

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Speaker 1: and then negotiate with the parties if it does have concerns.

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Speaker 1: So again, understanding how that process works, and then knowing

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Speaker 1: that before any of that had kicked off, the administration

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Speaker 1: was sort of going around publicly saying that the transaction

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Speaker 1: shouldn't go forward, I think fundamentally shows that they had

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Speaker 1: no intention of sort of looking at the facts or

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Speaker 1: following the requirements of the law. They had essentially looked

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Speaker 1: at the transaction and knew that it was a political

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Speaker 1: hot potato and recurrying favor with voters in a swing

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Speaker 1: state by saying, you know, we're never going to let

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Speaker 1: this go forward, but that's not what the law allows

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Speaker 1: the president to do.

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Speaker 2: The steel companies say that the Scythias panel sent a

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Speaker 2: seventeen page letter of security concerns riddle with inaccuracies over

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Speaker 2: the Labor Day weekend and only gave them one business

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Speaker 2: day to response, And they claim that the Siphious staff

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Speaker 2: were told not to offer counterproposals or engage in discussions that,

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Speaker 2: on its face, if true, seems to support the steel

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Speaker 2: company's arguments.

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Speaker 1: I think that's right, and I think it's important to

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Speaker 1: draw out that distinction, which is that the president did

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Speaker 1: this to Knipon Steel and US Steel, and the President

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Speaker 1: also did this Tocifius itself. You know, I think the

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Speaker 1: career staff at Syphius, they are quite good at running

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Speaker 1: their process. And so when you see things like a

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Speaker 1: seventeen page letter that again allegedly was riddled with factual inaccuracies,

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Speaker 1: that's not the type of thing that you would ordinarily

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Speaker 1: see out of Pythias. And I think it would show

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Speaker 1: you that Siphius was being ordered to do something that

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Speaker 1: it really didn't have evidence or justification to do, and

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Speaker 1: so they were sort of put in a position where

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Speaker 1: they had to stretch to meet the directive from above.

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Speaker 2: Where does it sit in that after this year long review,

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Speaker 2: the Committee divided on the risks and failed to reach

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Speaker 2: a decision about whether the deal should go forward.

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Speaker 1: So the process kicks off by the parties filing a

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Speaker 1: detailed notice to the Committee, and then over the course

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Speaker 1: of the review period, which is typically up to ninety days,

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Speaker 1: but it can be extended in tough cases voluntarily by

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Speaker 1: the parties and with Sethius's consent. The point of that

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Speaker 1: whole process is to provide the Committee with all the

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Speaker 1: information that it needs to fully render a decision, and

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Speaker 1: then if it does have concerns, there's time in the

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Speaker 1: process for the Committee and the parties to engage in

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Speaker 1: the negotiation around what conditions the Committee needs and what

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Speaker 1: conditions the parties can comply with, so that then the

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Speaker 1: Committee is in a position to approve a transaction. So

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Speaker 1: at the end of ninety days, what the Committee ordinarily

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Speaker 1: is looking to do is avoid referring anything to the

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Speaker 1: President's desk, and the way that that's achieved is there's

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Speaker 1: thirteen member ages season fifius. Nine of them are voting agencies.

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Speaker 1: The agencies have to be in unanimity that the transaction

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Speaker 1: should be approved, and so sometimes the agencies don't have

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Speaker 1: any national security concerns, or other times there is a

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Speaker 1: national security concern, but it's been solved with whatever conditions

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Speaker 1: were negotiated with the parties. So it's only when they

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Speaker 1: can't get comfortable with something and reach a unanimous conclusion

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Speaker 1: to approve a transaction then they refer something to the President.

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Speaker 1: And here the reports are that every agency was in

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Speaker 1: favor of approval except for the US Trade Representative, So

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Speaker 1: there was this sort of one holdout agency that was

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Speaker 1: saying that they didn't want to approve the transaction. So

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Speaker 1: in that case, when the committee is divided, that's when

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Speaker 1: it goes to the President for final adjudication.

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Speaker 2: That's interesting because the companies are also suing rival US

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Speaker 2: steelmaker Cleveland Cliffs, It's CEO and the United steel Workers

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Speaker 2: president alleging coordinated anti competitive and recketeering activities. And the

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Speaker 2: lawsuit claims that the US Trade Representative got a private

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Speaker 2: tour and fireside chat with the CEO and United steel

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Speaker 2: Workers leadership at a Cliff's facility, and they alleged that

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Speaker 2: the defendants improperly bought her loyalty. So that suits on

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Speaker 2: a separate track. We'll see where that suit goes. Coming

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Speaker 2: up next, President elect Donald Trump has said on truth

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Speaker 2: Social I will block this deal from happening. Buyer beware.

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Speaker 2: But could that change. I'm June Grosso and you're listening

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Speaker 2: to Bloomberg. Nippon Steele, and US Steel jointly filed a

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Speaker 2: pair of lawsuits in a last ditch effort to preserve

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Speaker 2: their planned nearly fifteen billion dollar merger. The companies are

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Speaker 2: arguing that SCIPHIUS, the Committee on Foreign Investment in the US,

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Speaker 2: failed to consider the deal on national security grounds, and

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Speaker 2: that Biden's or to block it was made for purely

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Speaker 2: political reasons. I've been talking to John Kabilo, a Washington,

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Speaker 2: DC attorney who specializes in cross border transactions. So, John,

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Speaker 2: are the companies basically making a due process argument?

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Speaker 1: Ultimately, they're making a due process argument, but I think

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Speaker 1: there's also, at least in my view, there's also a

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Speaker 1: substantive claim as well. But the due process argument is

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Speaker 1: pretty straightforward and I think extremely compelling, which is the

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Speaker 1: law sets forth this very detailed and robust process that

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Speaker 1: has the involvement of, like I said, thirteen federal agencies.

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Speaker 1: That process is there for a reason, and it's not

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Speaker 1: so that you know before they've done any work at all,

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Speaker 1: the president and other senior political officials can sort of

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Speaker 1: go all over the United States and publicly say that

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Speaker 1: that deal should never go forward. The fact that they

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Speaker 1: were doing that for considering any of the evidence, considering

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Speaker 1: any of the recommendations of the committee, that shows that

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Speaker 1: they were engaged in political thinking. And so at the

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Speaker 1: end of the day, you know, they took their sort

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Speaker 1: of political motivations and they grafted it on to national

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Speaker 1: security authorities. It can't be justified under a national security

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Speaker 1: regime to take up political action.

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Speaker 2: Presidents have brought authority to determine what constitutes a national

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Speaker 2: security threat. Can the president's authority here be challenged successfully

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Speaker 2: in court?

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Speaker 1: This is the novel issue here, which is, you know,

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Speaker 1: courts historically for centuries have deferred to the president on

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Speaker 1: questions of national security, you know, the substantive decision making

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Speaker 1: regarding what counts as a national security threat and what

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Speaker 1: does not. So in that regard, the president does have

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Speaker 1: broad authorities and it's hard to challenge them. But here,

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Speaker 1: I think what the parties are saying is that the

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Speaker 1: process itself was so flawed. They were denied their rights

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Speaker 1: from the beginning and ultimately what the president was doing

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Speaker 1: was not making a national security determination. What the president

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Speaker 1: was doing was making a political determination. And so I

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Speaker 1: I think that's the really interesting issue, at least in

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Speaker 1: my mind, that the courts are going to have to consider, is,

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Speaker 1: you know, when a president pretty clearly is engaged in

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Speaker 1: political behavior but just claiming that it's national security decision making,

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Speaker 1: what degree of difference does a court have to give

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Speaker 1: the president in those situations? And I think that's a

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Speaker 1: nuanced and a novel question in one where I think

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Speaker 1: the parties may have more traction than if it were,

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Speaker 1: you know, pretty clearly a standard national security type decision

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Speaker 1: that maybe the parties didn't like or maybe they thought

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Speaker 1: that the president was going too far. But I don't

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Speaker 1: even think there was really much of an attempt to

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Speaker 1: call this, you know, national security. This was economic nationalism,

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Speaker 1: This was election year politics, This was all sorts of things,

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Speaker 1: but it was not national security.

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Speaker 2: Nearly a decade ago, there was a court challenge to

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Speaker 2: the Scifius review process and the president's authority over foreign

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Speaker 2: business deals that concerned a Chinese owned company, and a

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Speaker 2: federal appeals court ruled that the company's due process rights

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Speaker 2: were violated. By the Sifius review, but still the court

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Speaker 2: didn't overturn President Barack Obama's order that the Chinese company

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Speaker 2: had to sell. Does that case have relevance here?

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Speaker 3: Right?

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Speaker 1: That was a little different. I think that case is

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Speaker 1: instructive in that, first of all, due process challenges can

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Speaker 1: be successful when the Syfius process itself is corrupted. And

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Speaker 1: so in that case, Fyfius pursued an action against a

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Speaker 1: Chinese acquirer of wind farms that were next to military

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Speaker 1: airspace that was used to train unman burial vehicles, and

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Speaker 1: CFIUS issued an interim order very early in the process,

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Speaker 1: and they ordered the deconstruction of windmills, They ordered that

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Speaker 1: the acquirer not access the property. They ordered all sorts

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Speaker 1: of extremely onerous things. And what the parties argued there

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Speaker 1: was that essentially the order from Syphius was so onerous

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Speaker 1: that it was equivalent of blocking the transaction. And really

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Speaker 1: only the President of the United States has the authority

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Speaker 1: to block a transaction. And so I think there they

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Speaker 1: got a lot of traction on that angle, which was

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Speaker 1: that there are limitations to what Syphias as a committee

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Speaker 1: can do. And then additionally they got some traction on

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Speaker 1: the notion that Syphius does have to provide some information

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Speaker 1: about its decision making process when it's going to take

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Speaker 1: an adverse action against the party. And then again when

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Speaker 1: that process was rerun and when the decision was in

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Speaker 1: Obama's hands, there was not a substantive way to challenge

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Speaker 1: a president's decision on national security grounds. But the parties

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Speaker 1: did make a lot of progress on the procedural violations.

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Speaker 2: So do you think it's possible that a court would

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Speaker 2: order another review by Syphius here?

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Speaker 1: Yeah, I think it's possible that a court would order

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Speaker 1: another review. It's clear that the process was corrupted from

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Speaker 1: even before day one, and so in that regard, whatever

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Speaker 1: sort of the maximal remedy for due process violations is,

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Speaker 1: any court should provide that remedy, you know. And then

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Speaker 1: I think the next question, which is, Okay, there's going

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Speaker 1: to be a new administration in town. The next president

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Speaker 1: has come out against this transaction. What happens there? And

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Speaker 1: this is just sort of crystal ball talk here, but

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Speaker 1: I do think that the parties are presented with an

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Speaker 1: opportunity to actually reach some kind of a deal with

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Speaker 1: the new administration. When you look at all of the

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Speaker 1: commitments that Nipon Steel was willing to make to get

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Speaker 1: the deal done. I think ultimately that transaction was really

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Speaker 1: really good for the steel workers and for US deal,

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Speaker 1: and for our domestic steel industry and for our supply

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Speaker 1: chain security. I think that, you know, the parties may

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Speaker 1: well be able to make a compelling pitch to the

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Speaker 1: next administration and find a way to get a deal done.

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Speaker 1: The next administration. You know, I think they pride themselves

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Speaker 1: in finding ways to get deals done, and I think

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Speaker 1: when they look at what's being off or they may

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Speaker 1: find something very compelling in that.

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Speaker 2: How long would it take for this lawsuit to go

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Speaker 2: through the DC circuit and perhaps a request for Supreme

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Speaker 2: Court review? Are we talking years or months?

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Speaker 5: Yeah?

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Speaker 1: Unfortunately, it could take quite some time. I wonder if

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Speaker 1: a court may use sort of exodited authorities to order

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Speaker 1: a new review or at least halt the block of

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Speaker 1: the transaction to provide the parties with more time and

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Speaker 1: more ability to negotiate with the new administration.

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Speaker 2: And is there a chance that this might be accepted

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Speaker 2: for review by the Supreme Court.

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Speaker 1: There are some novel legal questions here that I would

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Speaker 1: love to see in the hands of the Supreme Court,

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Speaker 1: because I think it's really critical, really really critical, not

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Speaker 1: just for the scipious process and not just for transaction parties,

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Speaker 1: but I really think for everyone it's important that we

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Speaker 1: come up with some idea that no president can just

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Speaker 1: wave a wand and call something national security and then

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Speaker 1: be exempt from all scrutiny. I think the traditional deference

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Speaker 1: to the president on anything understood to be national security

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Speaker 1: related is proper, but I think it also invites, and

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Speaker 1: we've seen this incithius, that more and more things are

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Speaker 1: being called national security, and at some point there's no

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Speaker 1: check on a president that wants to call anything that's

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Speaker 1: politically expedient national security. And I think it's really important

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Speaker 1: that a court step in and say we have to

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Speaker 1: have some guardrails, and Congress may need to act, but

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Speaker 1: somewhere there needs to be an intervention that says that

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Speaker 1: it's not a get out of jail free card, so

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Speaker 1: to speak, that if you call it national security, you

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Speaker 1: can do whatever you want.

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Speaker 2: I've read this prediction that if this suit is successful,

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Speaker 2: it would mean sweeping changes to the authority of the

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Speaker 2: US government to vet foreign transaction. Do you agree with that?

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Speaker 1: I don't see this suit as fundamentally rewriting the rules

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Speaker 1: of Syphius. I think the actions of the President and

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Speaker 1: the administration were so aberrant and so clearly objectionable that

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Speaker 1: you can create a ruling in this case that applies

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Speaker 1: to this case that doesn't rewrite the entire scipious process.

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Speaker 1: It's possible to just say, hey, this process and its

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Speaker 1: results need to have greater fidelity to the notion of

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Speaker 1: national security and can't just be clearly a political tool

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Speaker 1: or a tool used in clearly political context. And so

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Speaker 1: I don't think it has to be a very broad ruling.

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Speaker 2: And do you see any effects of this decision outside

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Speaker 2: of this deal the big picture.

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Speaker 1: Something that's personally troubling to me is that over the

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Speaker 1: last five or six years, the US has gone to Europe,

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Speaker 1: we've gone to Asia, and we've strongly incur in most

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Speaker 1: cases successfully encourage other nations to stand up processes that

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Speaker 1: are similar to Scythius. The animating factor there was that

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Speaker 1: we wanted other countries to get tougher on investments from China.

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Speaker 1: You know, it's always been in the back of my mind.

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Speaker 1: US investment firms are the number one overseas investors and

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Speaker 1: so we're sort of going around to other countries and

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Speaker 1: asking them to implement these processes. They're going to burden

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Speaker 1: US investors, but I think the policy thinking was that,

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Speaker 1: you know, that was worth it. But now having encouraged,

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Speaker 1: you know, all these other countries to set up Sithius

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Speaker 1: like processes and then to have made the single worst

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Speaker 1: decision in Sifia's history, and to make the single most

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Speaker 1: transparently political decision in fifious history, I think just paints

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Speaker 1: the entire exercise and undermines confidence in those countries that

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Speaker 1: the US is sort of a reliable partner and certainly

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Speaker 1: encourages similar behavior by those other countries. It's not a

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Speaker 1: stretch all to imagine, you know, especially if we implement

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Speaker 1: tariffs and you know, start potentially pulling back from NATO.

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Speaker 1: It's really easy to foresee a situation where anti American

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Speaker 1: sentiment rises, and you know, investments from American firms in

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Speaker 1: other countries all of a sudden are nearly impossible because

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Speaker 1: we've established as precedent that these regimes can be politicized. So,

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Speaker 1: you know, I do worry significantly about the second order

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Speaker 1: effects of this single decision. That is an awful decision.

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Speaker 2: Well, see if the courts remedy it. Thanks so much

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Speaker 2: John for being on the show. That's Washington, DC attorney

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Speaker 2: John Kabilo, who specializes in cross border transactions. As far

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Speaker 2: as the reaction in Japan, Japanese Prime Minister Shageru Ishiba

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Speaker 2: was blunted, warning that spoiling the deal might hurt Japanese

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Speaker 2: investment in the US. Ishiba was emphatic quote as for

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Speaker 2: why when national security was cited as an issue, it

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Speaker 2: must be clearly explained, otherwise future discussions on the matter

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Speaker 2: will come to naught, and that it's an unfortunate fact

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Speaker 2: that Japanese industry has voiced concerns about future investments between

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Speaker 2: the US and Japan. We have to take this very seriously.

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Speaker 2: Coming up next on the Bloomberg Law Show, the exit

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Speaker 2: of the fed's top bank cup puts capital rules in jeopardy.

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Speaker 2: I'm June Grosso and you're listening to Bloomberg. Federal Reserve

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Speaker 2: Vice Chair for Supervision Michael Barr plans to step down

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Speaker 2: from the role, avoiding a potential battle with President elect

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Speaker 2: Donald Trump over his position and raising questions about the

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Speaker 2: future of a landmark bank capital proposal. Joining me is

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Speaker 2: an expert on the FED and financial regulation. Catherine Judge,

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Speaker 2: a professor Columbia Law School, bar said it was a

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Speaker 2: very tough decision, but he was concerned that staying would

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Speaker 2: be a distraction for the institute. Do you think he

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Speaker 2: made the right decision.

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Speaker 5: I don't think he made the right decision. The concerns

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Speaker 5: animating the decision are understandable. There was a lot of discussion,

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Speaker 5: quite credible discussion, suggesting that the incoming Trump administration might

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Speaker 5: have sought to remove him from his post as vice chair,

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Speaker 5: And there is a difficult legal question about whether or

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Speaker 5: not the Trump administration would have the facility to remove

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Speaker 5: him by stepping down the short circuits that legal debate,

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Speaker 5: which would also have implications for the capacity of the

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Speaker 5: Trump administration or any presidential administration. True of the chair

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Speaker 5: of the sed that being said, he freely announced that

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Speaker 5: he believed he was in the right to be able

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Speaker 5: to stay in that position, and given that the Senate

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Speaker 5: confirmed him to that position, and there was a lot

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Speaker 5: that's still on that agenda, I would have preferred to

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Speaker 5: see him take on that fight and serve out his terms.

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Speaker 2: Who has the better side in that legal battle?

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Speaker 5: It is a really difficult legal question. I do think

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Speaker 5: that the stronger argument is that both the Vice Chair

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Speaker 5: and the Chair have the ability to serve out their

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Speaker 5: terms and cannot be removed by the President except for cause.

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Speaker 5: That being said, the judiciary has been much more hostile

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Speaker 5: to the independence of any agency, and those concerns could

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Speaker 5: very well result in a judicial decision holding that the

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Speaker 5: Vice Chair or the Chair is removable by the President

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Speaker 5: at their discretion.

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Speaker 2: Explain how his departure may impact or will impact the

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Speaker 2: future of this landmark bank capital proposal.

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Speaker 5: So one of his signature efforts as Vice Chair was

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Speaker 5: an effort meant was known as boslea free endgame, and

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Speaker 5: the aims were twofold one. It was trying to bring

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Speaker 5: the United States in line with international agreements that they

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Speaker 5: had already agreed to try to abide by embodied in

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Speaker 5: Boggle Free and to the specific proposal that came out

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Speaker 5: under his watch would have resulted in the very significant

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Speaker 5: strengthening of the capital requirements imposed on large banks that

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Speaker 5: was already significantly watered down. We don't have a reproposal,

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Speaker 5: but he announced in the fall that there was going

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Speaker 5: to be a reproposal that was going to be significantly

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Speaker 5: watered down from his initial proposal to strengthen bank capital requirement.

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Speaker 5: Now the prospects remained quite uncertain. We saw that the

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Speaker 5: FED announced in connection with Bar's resignation that it would

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Speaker 5: not pursue any significant rulemaking until somebody else has been

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Speaker 5: nominated confirmed to that role. So it really just creates

438
00:27:01,359 --> 00:27:05,199
Speaker 5: a period of uncertainty over what the future is going

439
00:27:05,240 --> 00:27:07,280
Speaker 5: to look like. But it's probably going to result in

440
00:27:07,320 --> 00:27:12,440
Speaker 5: something that's even weaker than the water downstandards are already suggested.

441
00:27:12,480 --> 00:27:14,960
Speaker 5: We're worth coming and even he at.

442
00:27:14,880 --> 00:27:19,040
Speaker 2: A difficult time getting broad based support for his policies.

443
00:27:19,080 --> 00:27:22,840
Speaker 2: So if he's not there and a Trump appointee is there,

444
00:27:23,160 --> 00:27:25,240
Speaker 2: I mean, how likely that anything will happen?

445
00:27:25,720 --> 00:27:28,960
Speaker 5: I mean, so that's an interesting question. One possibility, of course,

446
00:27:29,080 --> 00:27:32,800
Speaker 5: is nothing at all happens. Another possibility is the said

447
00:27:33,320 --> 00:27:39,360
Speaker 5: does still take seriously the desire to maintain the international

448
00:27:39,440 --> 00:27:42,800
Speaker 5: rule of the Boggle standards, and that they implement them,

449
00:27:42,800 --> 00:27:45,879
Speaker 5: that they implement them in a way that doesn't result

450
00:27:45,960 --> 00:27:49,480
Speaker 5: in significant increases and the capital requirements imposed on banks.

451
00:27:49,680 --> 00:27:53,200
Speaker 5: There's flexibility in how they are implemented. Are there ways

452
00:27:53,320 --> 00:27:56,440
Speaker 5: to implement them that would abide by at least much

453
00:27:56,440 --> 00:27:59,000
Speaker 5: of the spirit, if not all, of the details of

454
00:27:59,080 --> 00:28:02,560
Speaker 5: BUNCLE three, while not imposing the magnitude of the capital

455
00:28:02,600 --> 00:28:06,800
Speaker 5: requirement increases that would have been involved in Bar's initial proposal.

456
00:28:07,440 --> 00:28:10,600
Speaker 2: Do you think it's important that something like that happen.

457
00:28:11,920 --> 00:28:15,800
Speaker 5: It is important that something along those lines happen. Ever

458
00:28:15,880 --> 00:28:20,000
Speaker 5: since it was initially created, the Fossil Accords have played

459
00:28:20,040 --> 00:28:23,520
Speaker 5: a really important role acknowledging the fact that if there's

460
00:28:23,560 --> 00:28:27,600
Speaker 5: a banking crisis in one country, its impact stills over

461
00:28:27,840 --> 00:28:30,520
Speaker 5: in other countries as well, And so one of the

462
00:28:30,600 --> 00:28:34,480
Speaker 5: role of the Bossle Committee is to say, look, there

463
00:28:34,480 --> 00:28:37,560
Speaker 5: can be variation in different countries. There ought to be

464
00:28:37,560 --> 00:28:39,880
Speaker 5: some variation, but let's make sure that there's at least

465
00:28:39,920 --> 00:28:43,880
Speaker 5: the base level of agreement, and by all trying to

466
00:28:43,960 --> 00:28:46,840
Speaker 5: live up to this base level, we're going to minimize

467
00:28:46,920 --> 00:28:49,520
Speaker 5: or reduce at least the likelihood that there's going to

468
00:28:49,560 --> 00:28:52,960
Speaker 5: be significant failures in a major jurisdiction in ways that

469
00:28:53,080 --> 00:28:58,320
Speaker 5: really harm the broader banking system that's serving the global economy.

470
00:28:58,360 --> 00:29:00,360
Speaker 5: So there's a lot of reasons to want that overall

471
00:29:00,400 --> 00:29:05,160
Speaker 5: international infrastructure to live on, even in somewhat weaken form.

472
00:29:05,720 --> 00:29:09,360
Speaker 2: At his press conference today, Trump said he'll be announcing

473
00:29:09,360 --> 00:29:15,040
Speaker 2: a replacement for bar as Vice chair someday soon. He's

474
00:29:15,080 --> 00:29:18,840
Speaker 2: limited to picking one of two Republican Fed governors to

475
00:29:18,960 --> 00:29:23,360
Speaker 2: fill that position, Michelle Bowman or Christopher Waller.

476
00:29:23,600 --> 00:29:25,520
Speaker 5: That seems likely to be the case. So one of

477
00:29:25,560 --> 00:29:28,320
Speaker 5: the interesting things for this resignation is he chose to

478
00:29:28,400 --> 00:29:31,360
Speaker 5: resign from this position as vice chair, he did not

479
00:29:31,600 --> 00:29:35,760
Speaker 5: resign from his position as governor. There's very clear or

480
00:29:35,840 --> 00:29:38,680
Speaker 5: protection in place. So it's clear that Trump does not

481
00:29:38,800 --> 00:29:42,640
Speaker 5: have the ability to remove governors of the Shutter Reserve

482
00:29:43,200 --> 00:29:46,760
Speaker 5: except for cause. So it really does look like because

483
00:29:46,880 --> 00:29:49,760
Speaker 5: otherwise is a full slate that is either going to

484
00:29:49,760 --> 00:29:52,000
Speaker 5: be both in a wall or each of whom have

485
00:29:52,080 --> 00:29:54,240
Speaker 5: different important qualifications for the job.

486
00:29:55,080 --> 00:29:57,880
Speaker 2: Yeah, so that preserves the four to three advantage of

487
00:29:58,440 --> 00:30:02,760
Speaker 2: Democratic appointees on the Fed Board. It seems like there's

488
00:30:02,800 --> 00:30:05,280
Speaker 2: a lot of talk about Bowman taking his place.

489
00:30:05,640 --> 00:30:08,400
Speaker 5: Both of them the defensive from the original efforts to

490
00:30:08,600 --> 00:30:12,400
Speaker 5: strengthen capital requirements under Bossle three. So we do know

491
00:30:12,480 --> 00:30:15,960
Speaker 5: that each of them has a much softer approach and

492
00:30:16,040 --> 00:30:20,000
Speaker 5: more bank friendly approach to regulation. Bowman in particular has

493
00:30:20,040 --> 00:30:23,880
Speaker 5: been playing the role of supporting community banks, and she's

494
00:30:23,920 --> 00:30:28,360
Speaker 5: been vocal about concerns that banks are overly regulated and

495
00:30:28,400 --> 00:30:32,240
Speaker 5: trying to make sure that the broad banking system continue

496
00:30:32,240 --> 00:30:35,680
Speaker 5: to have flexibility. So I think we would see significant

497
00:30:36,280 --> 00:30:42,200
Speaker 5: weakening probably of regulatory standards with Bowman advice share for Supervision.

498
00:30:43,240 --> 00:30:47,840
Speaker 5: What about Waller, I mean, Waller has been similarly concerned

499
00:30:47,880 --> 00:30:51,200
Speaker 5: that the Bossle three went too far. I do think

500
00:30:51,240 --> 00:30:56,000
Speaker 5: Waller would likely have more of a concern that Bossle three,

501
00:30:56,080 --> 00:31:00,440
Speaker 5: for example, in some form likely get implemented for poses

502
00:31:01,000 --> 00:31:05,120
Speaker 5: of maintaining that crossborder relationship. But again, I think it

503
00:31:05,120 --> 00:31:08,480
Speaker 5: would likely happen in a form that's substantially weaker than

504
00:31:08,560 --> 00:31:13,880
Speaker 5: even the revised outline that bar had suggested for Boggle three.

505
00:31:14,320 --> 00:31:18,400
Speaker 5: So I think that either one would involve deregulation, but

506
00:31:18,440 --> 00:31:21,760
Speaker 5: Waller might be a little bit more of an institutionalness.

507
00:31:22,080 --> 00:31:27,040
Speaker 2: It's generally expected that Trump, as in his first term,

508
00:31:27,080 --> 00:31:31,320
Speaker 2: there's going to be a d emphasis on regulation, that

509
00:31:31,440 --> 00:31:34,600
Speaker 2: regulatory agencies are going to step back.

510
00:31:35,640 --> 00:31:38,479
Speaker 5: That is true. I mean that being said, it's easy

511
00:31:38,520 --> 00:31:44,960
Speaker 5: to overstate the extent of the impact. Randy Corrals was

512
00:31:45,040 --> 00:31:49,240
Speaker 5: the vice chair for Supervision during Trump's first administration. And

513
00:31:49,640 --> 00:31:52,320
Speaker 5: we certainly saw that all of the modifications and red

514
00:31:52,360 --> 00:31:55,800
Speaker 5: before reforms that he implemented tended to be in the

515
00:31:55,840 --> 00:32:00,880
Speaker 5: direction of reducing capital and other requirements as imposed on banks.

516
00:32:01,240 --> 00:32:05,440
Speaker 5: That being said, it wasn't a wholesale overhaul, and much

517
00:32:05,480 --> 00:32:08,560
Speaker 5: of the did Frank regime as it had been implemented

518
00:32:08,960 --> 00:32:13,320
Speaker 5: really remained in place, and banks remained significantly better capitalized

519
00:32:13,360 --> 00:32:16,320
Speaker 5: than they were prior to two thousand and eight. So

520
00:32:16,360 --> 00:32:19,600
Speaker 5: there was a weakening of softening, but there wasn't a

521
00:32:19,600 --> 00:32:20,640
Speaker 5: wholesale revision.

522
00:32:21,280 --> 00:32:25,640
Speaker 2: Trump has yet to name nominees for the FDIC, the

523
00:32:25,680 --> 00:32:29,280
Speaker 2: Office of the Controller of the Currency, and the CFPB.

524
00:32:30,120 --> 00:32:33,120
Speaker 2: How important are those nominees going to be?

525
00:32:33,760 --> 00:32:36,600
Speaker 5: They're all quite important and for different reasons. So, first

526
00:32:36,640 --> 00:32:38,680
Speaker 5: of all, when it comes to much as bank regulation,

527
00:32:39,440 --> 00:32:41,320
Speaker 5: a lot of it is not the product of FED

528
00:32:41,360 --> 00:32:45,800
Speaker 5: regulational loans, but it's instead joint rulemaking with the FDAC

529
00:32:46,600 --> 00:32:51,959
Speaker 5: and the OCC. Interestingly, those traditionally been independent agencies who've

530
00:32:51,960 --> 00:32:56,440
Speaker 5: often had leadership that transcends changes in the administration. But

531
00:32:56,480 --> 00:32:59,240
Speaker 5: for a variety of reasons, both of those positions are

532
00:32:59,280 --> 00:33:02,560
Speaker 5: going to be imediately open. So it really is going

533
00:33:02,760 --> 00:33:07,200
Speaker 5: to be free for the Trump administration to make significant

534
00:33:07,280 --> 00:33:09,960
Speaker 5: changes across the bank regulatory regime.

535
00:33:10,600 --> 00:33:13,760
Speaker 2: Tell me what you think Bar contributed in his time

536
00:33:13,880 --> 00:33:15,360
Speaker 2: as vice chair.

537
00:33:15,880 --> 00:33:19,200
Speaker 5: So one of his most important contributions was really shining

538
00:33:19,200 --> 00:33:25,120
Speaker 5: a spotlight on the deficiencies and the bank supervisory processes

539
00:33:25,760 --> 00:33:31,000
Speaker 5: leading up to the failure of SDB. And while it's

540
00:33:31,080 --> 00:33:35,480
Speaker 5: not transparent to the public, one of his significant initiatives

541
00:33:35,760 --> 00:33:39,040
Speaker 5: was to try to strengthen bank supervision. And so part

542
00:33:39,040 --> 00:33:41,320
Speaker 5: of what we aren't going to ever be able to

543
00:33:41,320 --> 00:33:43,440
Speaker 5: fully understand, or at least loan in the short runt

544
00:33:43,480 --> 00:33:45,920
Speaker 5: be able to fully understand, is how much of an

545
00:33:45,960 --> 00:33:49,480
Speaker 5: impact he has had trying to strengthen the banking sector

546
00:33:49,920 --> 00:33:55,440
Speaker 5: by strengthen thinning the supervisory processes and the rigor of supervision.

547
00:33:55,360 --> 00:33:59,560
Speaker 2: Any other regulatory issues. Connected with Barr's departure.

548
00:33:59,480 --> 00:34:04,479
Speaker 5: There was an announcement by the federals are just in

549
00:34:04,560 --> 00:34:08,600
Speaker 5: December twenty twenty four that they were going to undertake

550
00:34:09,120 --> 00:34:13,080
Speaker 5: significant changes and how they can extress this thing, and

551
00:34:13,160 --> 00:34:16,120
Speaker 5: that that too is going to go to a significant

552
00:34:16,600 --> 00:34:21,080
Speaker 5: rulemaking process. And so that's another process that now looks

553
00:34:21,120 --> 00:34:24,000
Speaker 5: like it's going to be on hold. It's how we

554
00:34:24,080 --> 00:34:27,280
Speaker 5: have a new advice share for supervision. And that's also

555
00:34:27,320 --> 00:34:31,759
Speaker 5: a process that could result in very significant changes in

556
00:34:31,840 --> 00:34:34,160
Speaker 5: the regulatory environment facing banks.

557
00:34:34,520 --> 00:34:36,960
Speaker 2: Thanks so much for being on the show, Kate. That's

558
00:34:36,960 --> 00:34:40,920
Speaker 2: Professor Catherine Judge of Columbia Law School. In other legal

559
00:34:40,960 --> 00:34:44,400
Speaker 2: news today, Trump is still set to be sentenced for

560
00:34:44,480 --> 00:34:48,080
Speaker 2: his hush money conviction on Friday, at least for now,

561
00:34:48,440 --> 00:34:51,759
Speaker 2: after a New York Appeals Court judge swiftly rejected his

562
00:34:51,840 --> 00:34:55,280
Speaker 2: second attempt to get it called off. Judge Ellen Gasber

563
00:34:55,600 --> 00:34:58,960
Speaker 2: denied Trump's request for an order that would have indefinitely

564
00:34:59,000 --> 00:35:02,239
Speaker 2: postponed sent and sing and halted the case while he

565
00:35:02,280 --> 00:35:06,800
Speaker 2: appeals a decision last week upholding the verdict. The judges

566
00:35:06,880 --> 00:35:10,960
Speaker 2: one sentenced decision didn't give reasons for her denial. That

567
00:35:11,160 --> 00:35:15,680
Speaker 2: means that Trump's sentencing is on schedule for Friday, although

568
00:35:15,719 --> 00:35:19,439
Speaker 2: he can still ask other courts to intervene. And that's

569
00:35:19,480 --> 00:35:22,080
Speaker 2: it for this edition of the Bloomberg Law Show. Remember

570
00:35:22,120 --> 00:35:24,239
Speaker 2: you can always get the latest legal news on our

571
00:35:24,239 --> 00:35:28,400
Speaker 2: Bloomberg Law podcasts. You can find them on Apple Podcasts, Spotify,

572
00:35:28,600 --> 00:35:33,640
Speaker 2: and at www dot Bloomberg dot com, Slash podcast Slash Law,

573
00:35:34,040 --> 00:35:36,600
Speaker 2: and remember to tune into The Bloomberg Law Show, every

574
00:35:36,680 --> 00:35:40,560
Speaker 2: weeknight at ten pm Wall Street Time. I'm June Grosso

575
00:35:40,719 --> 00:35:42,320
Speaker 2: and you're listening to Bloomberg