1 00:00:03,120 --> 00:00:07,960 Speaker 1: This is Bloomberg Law with June Brussel from Bloomberg Radio. 2 00:00:10,840 --> 00:00:15,200 Speaker 1: After two historic bank failures, President Joe Biden sought to 3 00:00:15,240 --> 00:00:19,799 Speaker 1: reassure jittery consumers and markets that the US financial system 4 00:00:19,920 --> 00:00:23,000 Speaker 1: is on solid footing. Look, the bottom line is this, 5 00:00:23,640 --> 00:00:27,560 Speaker 1: Americans can rest assured that our banking system is safe, 6 00:00:28,240 --> 00:00:31,640 Speaker 1: your deposits are safe. Let me also assure you we 7 00:00:31,680 --> 00:00:34,680 Speaker 1: will not stop at this, will do whatever is needed. 8 00:00:34,920 --> 00:00:38,120 Speaker 1: He promised to hold responsible those behind the collapse of 9 00:00:38,159 --> 00:00:40,920 Speaker 1: the two banks and said he'd call on Congress to 10 00:00:41,080 --> 00:00:44,840 Speaker 1: strengthen regulation of the banking system. Joining me as business 11 00:00:44,920 --> 00:00:48,320 Speaker 1: law expert, Eric Tallely, a professor at Columbia Law School, 12 00:00:48,960 --> 00:00:53,160 Speaker 1: start with the basic question what happened to Silicon Valley 13 00:00:53,200 --> 00:00:59,120 Speaker 1: Bank SEB basically fell prey to a pretty conventional bank run, 14 00:00:59,400 --> 00:01:03,000 Speaker 1: and sort of odd to think, after so many years 15 00:01:03,040 --> 00:01:06,840 Speaker 1: of knowing what can cause bank runs, that it happened 16 00:01:07,040 --> 00:01:11,760 Speaker 1: again here, But I guess There are two critical insights 17 00:01:11,840 --> 00:01:15,120 Speaker 1: from modern finance and banking that most people try to 18 00:01:15,200 --> 00:01:19,880 Speaker 1: keep in mind. The first is that concentration of any 19 00:01:19,959 --> 00:01:23,560 Speaker 1: type of investment or asset can be really hazardous in 20 00:01:24,000 --> 00:01:27,640 Speaker 1: volatile markets, particularly if you don't try to diversify or 21 00:01:27,720 --> 00:01:31,760 Speaker 1: heads that concentration. And then the second rule is that 22 00:01:32,120 --> 00:01:35,880 Speaker 1: accounting tricks don't help you solve the first problem. So 23 00:01:36,000 --> 00:01:39,839 Speaker 1: I think both of those managed to work their way 24 00:01:39,920 --> 00:01:44,560 Speaker 1: into this SVB collapse. They managed sort of to ignore 25 00:01:44,600 --> 00:01:47,760 Speaker 1: the insights that are served there, or at least ignore 26 00:01:48,040 --> 00:01:50,080 Speaker 1: parts of them. And so there's a sense in which 27 00:01:50,120 --> 00:01:52,320 Speaker 1: I think a lot of people think that although this 28 00:01:52,400 --> 00:01:55,120 Speaker 1: was a conventional bank run, it also was one that 29 00:01:55,440 --> 00:01:58,880 Speaker 1: on some level would not have been all that difficult 30 00:01:59,040 --> 00:02:03,120 Speaker 1: to avoid, but it required sort of thinking through how 31 00:02:03,200 --> 00:02:07,680 Speaker 1: some of these issues work. Explain how Silicon Valley Bank 32 00:02:08,000 --> 00:02:11,959 Speaker 1: was in essence v bank for Silicon Valley. You know, 33 00:02:12,080 --> 00:02:15,639 Speaker 1: the offense, Unless you were in the VC or startup community, 34 00:02:15,639 --> 00:02:18,720 Speaker 1: you probably had never heard of Silicon Valley Bank. On 35 00:02:18,800 --> 00:02:21,520 Speaker 1: the other hand, if you were a Silicon Valley startup 36 00:02:21,639 --> 00:02:24,320 Speaker 1: or a VC fund, there's a chance you'd probably never 37 00:02:24,360 --> 00:02:26,320 Speaker 1: heard of any other bank, or at least you were 38 00:02:26,360 --> 00:02:29,720 Speaker 1: discouraged from doing any business with them, because that was 39 00:02:29,880 --> 00:02:33,880 Speaker 1: the bank for venture finance and basically not anything else. 40 00:02:33,880 --> 00:02:38,520 Speaker 1: There really were certain concentrated the venture capital funding and 41 00:02:38,600 --> 00:02:41,880 Speaker 1: fundraising community, and that, you know, sort of is a 42 00:02:41,880 --> 00:02:46,480 Speaker 1: big degree of concentration, and while having VC funds and 43 00:02:46,639 --> 00:02:49,560 Speaker 1: startups all banking at the same place, that was sort 44 00:02:49,560 --> 00:02:51,560 Speaker 1: of the bank where all the cool startups and the 45 00:02:51,600 --> 00:02:55,000 Speaker 1: cool VC funds went. That has some advantages on day 46 00:02:55,000 --> 00:02:58,440 Speaker 1: to day transactions and transferring balances and making payments and 47 00:02:58,480 --> 00:03:02,440 Speaker 1: so forth. It really did suggest that SVB was susceptible 48 00:03:02,480 --> 00:03:06,320 Speaker 1: to all kinds of boom and bust risks that might 49 00:03:06,400 --> 00:03:11,760 Speaker 1: befall the sector of VC finances. Startups explain how the 50 00:03:11,800 --> 00:03:15,520 Speaker 1: reasons slowed down in the economy played into this. In 51 00:03:15,639 --> 00:03:18,720 Speaker 1: early twenty twenty one and twenty twenty two, I guess 52 00:03:18,760 --> 00:03:21,000 Speaker 1: there was just a huge boom and so they managed 53 00:03:21,040 --> 00:03:25,520 Speaker 1: to ride this boom in which scb's deposits grew astonishingly fast. 54 00:03:25,680 --> 00:03:28,200 Speaker 1: But then when we hit the recent slowdown in the economy, 55 00:03:28,320 --> 00:03:32,760 Speaker 1: startups faced a much injured environment, and that also kind 56 00:03:32,760 --> 00:03:36,680 Speaker 1: of plamed Silicon Valley Bank. Now, even in that situation, 57 00:03:36,920 --> 00:03:39,440 Speaker 1: you could still try to hedge some of those risks 58 00:03:39,640 --> 00:03:43,320 Speaker 1: using various types of strategies, but that largely was going 59 00:03:43,360 --> 00:03:46,280 Speaker 1: to be up to Silicon Valley Bank. It was not 60 00:03:46,400 --> 00:03:49,760 Speaker 1: one of the big banks that you would be subject 61 00:03:49,840 --> 00:03:55,560 Speaker 1: to Relatively stringent requirements that would effectively require them to 62 00:03:55,680 --> 00:03:58,680 Speaker 1: have assets on hands to deal with the bank run. 63 00:03:59,080 --> 00:04:02,760 Speaker 1: This is a smaller bank, and in twenty eighteen, the 64 00:04:02,800 --> 00:04:06,520 Speaker 1: Trump administration actually rolled back some of those stringent requirements 65 00:04:06,520 --> 00:04:08,760 Speaker 1: for banks of this size, and so it was really 66 00:04:08,840 --> 00:04:12,360 Speaker 1: up the Silicon Valley Bank to develop its own policies 67 00:04:12,480 --> 00:04:17,120 Speaker 1: on how best to insulate itself against these sorts of 68 00:04:17,240 --> 00:04:19,760 Speaker 1: bank runs, and therefore Silicon Valley had to kind of 69 00:04:19,800 --> 00:04:22,800 Speaker 1: come up with its own approach. Now, the approach they 70 00:04:22,839 --> 00:04:26,920 Speaker 1: came up with itself wasn't obviously super risky. A lot 71 00:04:26,920 --> 00:04:29,719 Speaker 1: of banks, for example, might start lending money out to 72 00:04:29,839 --> 00:04:33,279 Speaker 1: various of their customers and those borrowers could actually bring 73 00:04:33,320 --> 00:04:36,159 Speaker 1: in even more risks to the bank, and Silicon Valley 74 00:04:36,320 --> 00:04:39,440 Speaker 1: largely didn't do that because they were pretty much catering 75 00:04:39,480 --> 00:04:42,000 Speaker 1: to the venture capital community, and there isn't a lot 76 00:04:42,000 --> 00:04:45,000 Speaker 1: of debt that's floating around in the venture capital community, 77 00:04:45,040 --> 00:04:48,120 Speaker 1: or at least long term debt. A few short term 78 00:04:48,160 --> 00:04:51,640 Speaker 1: pet debt instruments, but it's pretty much a cash set industry, 79 00:04:51,760 --> 00:04:54,760 Speaker 1: so they didn't really have customers that were in that 80 00:04:54,839 --> 00:04:58,560 Speaker 1: industry that were demanding loans. So instead they parked that 81 00:04:58,760 --> 00:05:03,400 Speaker 1: money in what looks to be relatively safe government or 82 00:05:03,440 --> 00:05:08,320 Speaker 1: corporate bonds, but they were importantly long term corporate bond 83 00:05:08,440 --> 00:05:11,520 Speaker 1: and that is one of the potential risks. Even though 84 00:05:11,600 --> 00:05:13,760 Speaker 1: those investments look safe on their face, it's not like 85 00:05:13,760 --> 00:05:16,760 Speaker 1: they're going to default or likely not going to default. 86 00:05:17,160 --> 00:05:20,520 Speaker 1: It does sort of give rise to a standard problem 87 00:05:20,640 --> 00:05:24,200 Speaker 1: that all banks face, which is that they have creditors 88 00:05:24,200 --> 00:05:28,000 Speaker 1: who are basically their depositors, who have short term claims 89 00:05:28,000 --> 00:05:30,320 Speaker 1: on the company. They can show up any time and 90 00:05:30,440 --> 00:05:33,440 Speaker 1: ask for their money. And what the banks typically do 91 00:05:34,160 --> 00:05:37,200 Speaker 1: is they have those funds parked in various types of 92 00:05:37,360 --> 00:05:42,280 Speaker 1: longer term investments, and so they basically transform short term 93 00:05:42,320 --> 00:05:45,760 Speaker 1: claims into long term claims. And when those two sorts 94 00:05:45,800 --> 00:05:49,200 Speaker 1: of claims go crosswise with one another, like they did here, 95 00:05:49,839 --> 00:05:53,440 Speaker 1: that can cause a bank run. And that's effectively what 96 00:05:53,680 --> 00:05:58,240 Speaker 1: happened in this case. So you've got this sort of concentration. 97 00:05:58,720 --> 00:06:02,800 Speaker 1: The bank buys the longer term bonds, which you know, 98 00:06:02,839 --> 00:06:05,480 Speaker 1: when they bought them twenty twenty one. In early twenty 99 00:06:05,520 --> 00:06:08,560 Speaker 1: twenty two, interest rates were really low, and so these 100 00:06:08,600 --> 00:06:13,000 Speaker 1: bonds they bought a pretty low interest rates, and when 101 00:06:13,080 --> 00:06:16,480 Speaker 1: interest rates suddenly start to spike in the latter half 102 00:06:16,520 --> 00:06:20,160 Speaker 1: of twenty twenty two. In early twenty twenty three, the value, 103 00:06:20,200 --> 00:06:22,200 Speaker 1: the fair market value if you wanted to sell one 104 00:06:22,200 --> 00:06:24,039 Speaker 1: of those government bonds, or if you wanted to sell 105 00:06:24,040 --> 00:06:26,680 Speaker 1: one of those Clipper bonds, it goes down. And the 106 00:06:26,720 --> 00:06:28,640 Speaker 1: reason it goes down is because you've got to find 107 00:06:28,640 --> 00:06:31,400 Speaker 1: someone to buy it from you. And then investors looking 108 00:06:31,440 --> 00:06:33,200 Speaker 1: around and saying, well, interest rates has just gone up. 109 00:06:33,200 --> 00:06:35,760 Speaker 1: I can invest in some of these high interest rates 110 00:06:35,960 --> 00:06:38,880 Speaker 1: assets right now. Why should I buy your really low 111 00:06:38,960 --> 00:06:41,120 Speaker 1: interest rate asset. The only way that you can make 112 00:06:41,120 --> 00:06:44,039 Speaker 1: an attractive is to basically give people a price cut, 113 00:06:44,400 --> 00:06:48,160 Speaker 1: and that's effectively what happened is the Silicon Valley Bank 114 00:06:48,560 --> 00:06:51,200 Speaker 1: realized they were starting to get hit with a bunch 115 00:06:51,279 --> 00:06:54,680 Speaker 1: of demands to withdraw the cash from the accounts because 116 00:06:55,000 --> 00:06:58,320 Speaker 1: these startups were having to make payroll, and they will know, 117 00:06:58,320 --> 00:07:01,200 Speaker 1: the venture capital funding it down a little bit. They 118 00:07:01,200 --> 00:07:04,200 Speaker 1: had to sell some of these bonds, and when they did, 119 00:07:04,600 --> 00:07:08,800 Speaker 1: they had to officially recognize in their accounting statements that yeah, 120 00:07:08,839 --> 00:07:10,880 Speaker 1: they lost a bunch of money on these things, and 121 00:07:11,560 --> 00:07:13,360 Speaker 1: then they had to sort of make up for that 122 00:07:13,520 --> 00:07:16,520 Speaker 1: that amount of money. Now, in reality, they had already 123 00:07:16,600 --> 00:07:19,560 Speaker 1: kind of lost that money. The fair market value of 124 00:07:19,600 --> 00:07:23,920 Speaker 1: those government bonds had been going down because of the 125 00:07:24,440 --> 00:07:27,120 Speaker 1: fact that interest rates were going up. But given the 126 00:07:27,120 --> 00:07:30,320 Speaker 1: way that they treated these government and corporate bonds on 127 00:07:30,360 --> 00:07:34,600 Speaker 1: their accounting statements, they didn't have to recognize those losses 128 00:07:34,680 --> 00:07:37,920 Speaker 1: until they actually sold them where they in, which they did, 129 00:07:38,160 --> 00:07:42,200 Speaker 1: and at that point the market is susceptible to freaking out. 130 00:07:42,240 --> 00:07:45,160 Speaker 1: And that's exactly what happened. A bunch of these startups 131 00:07:45,200 --> 00:07:47,320 Speaker 1: start trying to pull their money from the bank. In 132 00:07:47,400 --> 00:07:49,360 Speaker 1: order to provide that money, you got to sell even 133 00:07:49,360 --> 00:07:52,600 Speaker 1: more of these bonds, recognized even more of it had lost, 134 00:07:52,840 --> 00:07:55,960 Speaker 1: and the whole thing can unravel. And that's effectively what happened. 135 00:07:56,200 --> 00:08:00,120 Speaker 1: In a remarkably fast forty eight hours last week, two 136 00:08:00,200 --> 00:08:05,679 Speaker 1: days after as Phoebes collapse, regulators close another crypto friendly bank, 137 00:08:05,800 --> 00:08:10,160 Speaker 1: New York Signature Bank, and Barney Frank, the co sponsor 138 00:08:10,280 --> 00:08:13,679 Speaker 1: of the Dot Frank Bill and also on the board 139 00:08:13,880 --> 00:08:17,040 Speaker 1: of Signature Bank, said, I think that if we've been 140 00:08:17,040 --> 00:08:19,720 Speaker 1: allowed to open tomorrow, that we could have continued. We 141 00:08:19,760 --> 00:08:22,120 Speaker 1: have a solid book where the biggest lender in New 142 00:08:22,200 --> 00:08:25,440 Speaker 1: York city under the low income housing tax credit. I 143 00:08:25,560 --> 00:08:28,560 Speaker 1: think the bank could have been a going concern. Did 144 00:08:28,600 --> 00:08:32,720 Speaker 1: the regulators act too quickly? Well, First of all, that statement, 145 00:08:32,800 --> 00:08:35,240 Speaker 1: whether it comes from Barney Frank or anyone else, is 146 00:08:35,280 --> 00:08:38,360 Speaker 1: not an uncommon statement from any manager of a bank 147 00:08:38,600 --> 00:08:41,600 Speaker 1: or board member of a bank that has fallen into crisis. 148 00:08:41,640 --> 00:08:44,760 Speaker 1: That's sort of the standard point that bank runs, you know, 149 00:08:44,920 --> 00:08:48,400 Speaker 1: in some respects are as much about psychology as they 150 00:08:48,440 --> 00:08:52,199 Speaker 1: are about anything else, and so in principle, sure, if 151 00:08:52,240 --> 00:08:55,120 Speaker 1: you can reverse the psychology that causes the bank run, 152 00:08:55,600 --> 00:08:59,240 Speaker 1: then you're unlikely to have to pay the huge consequences 153 00:08:59,280 --> 00:09:01,960 Speaker 1: of it. The problem is that to the extent that 154 00:09:02,080 --> 00:09:06,040 Speaker 1: some of these bank failures or bank moments of distress 155 00:09:06,080 --> 00:09:09,600 Speaker 1: are also contagious to other parts of the banking system, 156 00:09:10,080 --> 00:09:12,080 Speaker 1: that's not going to be something that the manager of 157 00:09:12,120 --> 00:09:16,400 Speaker 1: the bank in question is themselves going to internalize, right, 158 00:09:16,440 --> 00:09:19,400 Speaker 1: They're just really hoping to turn things around in this 159 00:09:19,480 --> 00:09:23,640 Speaker 1: particular instance, And the signature bank exposure in many ways 160 00:09:23,760 --> 00:09:27,839 Speaker 1: was much more sort of akin to the already familiar 161 00:09:27,960 --> 00:09:31,040 Speaker 1: tale of the sort of banks with a fair amount 162 00:09:31,040 --> 00:09:35,640 Speaker 1: of crypto exposure having their own valuations undercut, and signature 163 00:09:35,920 --> 00:09:38,440 Speaker 1: far more than Silicon Valley Bank in fact had that 164 00:09:38,520 --> 00:09:41,280 Speaker 1: type of exposure. So you know, on some level, the 165 00:09:41,320 --> 00:09:45,280 Speaker 1: decision to lump in the Signature with Silicon Valley Bank 166 00:09:45,440 --> 00:09:49,640 Speaker 1: was really more of a macro decision. The two institutions 167 00:09:49,760 --> 00:09:53,920 Speaker 1: faced a slightly different set of portfolio risks, but it's 168 00:09:54,000 --> 00:09:57,040 Speaker 1: clearly the case that the federal government stepped in. Even 169 00:09:57,080 --> 00:10:02,719 Speaker 1: though these were officially classified as all regional banks. The 170 00:10:02,760 --> 00:10:07,320 Speaker 1: move over the weekend sees them ensure them up was 171 00:10:07,920 --> 00:10:10,280 Speaker 1: you know, in many ways the type of move that 172 00:10:10,400 --> 00:10:14,200 Speaker 1: is appropriate for a so called systemically significant bank, and 173 00:10:14,280 --> 00:10:18,320 Speaker 1: that's effectively the exception that federal authorities kicked into play 174 00:10:18,360 --> 00:10:21,160 Speaker 1: when they did this. So I think the move here 175 00:10:21,280 --> 00:10:24,720 Speaker 1: is to say, Signature and Silicon Valley Bank, we don't 176 00:10:24,720 --> 00:10:26,480 Speaker 1: want them to be the first threat of a sweater 177 00:10:26,520 --> 00:10:29,760 Speaker 1: that unravels, and so it's important for the federal government 178 00:10:29,800 --> 00:10:34,280 Speaker 1: to step in and assure depositors, even those that don't 179 00:10:34,280 --> 00:10:38,160 Speaker 1: have insurance deposits, that they'll have access to their funds. 180 00:10:38,400 --> 00:10:40,160 Speaker 1: But the challenge is to do so in a way 181 00:10:40,160 --> 00:10:43,360 Speaker 1: that doesn't create any so called moral hazard problem of 182 00:10:43,880 --> 00:10:47,720 Speaker 1: every bank realizing, oh, we've got this great backstop of 183 00:10:47,800 --> 00:10:50,760 Speaker 1: the federal government writing to the rescue, So why do 184 00:10:50,800 --> 00:10:53,520 Speaker 1: we have to engage in very much discipline ourselves? And 185 00:10:53,559 --> 00:10:56,880 Speaker 1: so part of the structuring of both the STB and 186 00:10:56,920 --> 00:11:01,000 Speaker 1: the Signature resolution plans was to try to figure out 187 00:11:01,040 --> 00:11:03,880 Speaker 1: a way to do that that wouldn't sort of encourage 188 00:11:04,080 --> 00:11:08,760 Speaker 1: other future banks and bank managers and owners to go 189 00:11:08,800 --> 00:11:10,679 Speaker 1: down the same path and think that they're going to 190 00:11:10,760 --> 00:11:14,280 Speaker 1: get bailed out or rescued by the federal government. Well, 191 00:11:14,280 --> 00:11:18,079 Speaker 1: I think President Biden was attempting to convey that this morning. 192 00:11:18,640 --> 00:11:21,319 Speaker 1: Biden also said they need to get a full accounting 193 00:11:21,320 --> 00:11:25,240 Speaker 1: of what happened and promised to hold responsible those behind 194 00:11:25,280 --> 00:11:28,400 Speaker 1: the collapse of the two banks. Do you have any 195 00:11:28,400 --> 00:11:31,319 Speaker 1: idea what he means by that hold them responsible legally 196 00:11:31,480 --> 00:11:35,480 Speaker 1: financially well, part of the issue, I think it really 197 00:11:35,559 --> 00:11:38,800 Speaker 1: is trying to figure out how to structure one of 198 00:11:38,840 --> 00:11:41,440 Speaker 1: these bank resolutions. I'm not going to call it a bailout, 199 00:11:41,440 --> 00:11:43,760 Speaker 1: though some people are calling it that in a way 200 00:11:43,800 --> 00:11:48,560 Speaker 1: that doesn't kind of reward the decision makers that put 201 00:11:48,679 --> 00:11:52,000 Speaker 1: the bank into that position to begin with. And so 202 00:11:52,240 --> 00:11:56,360 Speaker 1: I think there's been a fairly strong sense of kind 203 00:11:56,360 --> 00:11:58,559 Speaker 1: of rules of thumb when one of these things is 204 00:11:58,600 --> 00:12:01,360 Speaker 1: going on, and some of my own research is kind 205 00:12:01,360 --> 00:12:03,320 Speaker 1: of you landed in this place as well, is that 206 00:12:03,360 --> 00:12:06,400 Speaker 1: if you are going to step in from the government's 207 00:12:06,440 --> 00:12:10,440 Speaker 1: perspective and do something that resembles a bailout of a 208 00:12:10,480 --> 00:12:12,959 Speaker 1: bank or a big institution, you don't want to then 209 00:12:13,000 --> 00:12:15,000 Speaker 1: sort of say oh, and don't worry about it. You know, 210 00:12:15,200 --> 00:12:18,280 Speaker 1: shareholders and managers that put the bank into the spot, 211 00:12:18,320 --> 00:12:20,640 Speaker 1: We'll just give you a second chance. That the more 212 00:12:20,679 --> 00:12:22,880 Speaker 1: prudent roles to say no, you are now going to 213 00:12:22,920 --> 00:12:25,079 Speaker 1: be moved out. You're going to be replaced by new 214 00:12:25,120 --> 00:12:29,199 Speaker 1: shareholders and new managers. And therefore the you know, you're 215 00:12:29,240 --> 00:12:31,280 Speaker 1: going to have to eat your own cooking, and the 216 00:12:31,320 --> 00:12:34,120 Speaker 1: bank's going to go forward under new management with a 217 00:12:34,200 --> 00:12:39,000 Speaker 1: new ownership structure, probably consisting of some of the lenders 218 00:12:39,040 --> 00:12:41,319 Speaker 1: to the bank some of the creditors off the bank. 219 00:12:41,360 --> 00:12:43,720 Speaker 1: And so I think that's the idea, the good chunk 220 00:12:43,760 --> 00:12:47,360 Speaker 1: of the idea behind these resolutions. And if you're going 221 00:12:47,440 --> 00:12:49,360 Speaker 1: to do a type of a bank resolution like this, 222 00:12:49,480 --> 00:12:51,839 Speaker 1: it makes a great deal of sense to play hardball 223 00:12:52,000 --> 00:12:55,040 Speaker 1: on some level as a way to avoid some of 224 00:12:55,080 --> 00:12:58,400 Speaker 1: these moral hazard problems. The risk in doing that is 225 00:12:58,440 --> 00:13:02,880 Speaker 1: that if you can't find, say, bank managers who are 226 00:13:02,920 --> 00:13:05,640 Speaker 1: as good as the ones you're getting rid of, then 227 00:13:05,760 --> 00:13:08,600 Speaker 1: that could be problematic as well. And so it is 228 00:13:08,600 --> 00:13:11,600 Speaker 1: a little bit of a kind of a hardball policy 229 00:13:11,640 --> 00:13:14,480 Speaker 1: tactic is one that makes a great deal of sense. 230 00:13:14,880 --> 00:13:17,240 Speaker 1: It might come with a little bit of risk, but 231 00:13:17,320 --> 00:13:20,199 Speaker 1: I think for all intents and purposes, it's probably the 232 00:13:20,520 --> 00:13:24,720 Speaker 1: prootive way to step in and back up some banks 233 00:13:24,720 --> 00:13:28,439 Speaker 1: without it constituting what you know basically amounts to an 234 00:13:28,480 --> 00:13:31,040 Speaker 1: invitation to all the other banks out there to go 235 00:13:31,080 --> 00:13:33,720 Speaker 1: down the same road. I mean, is it going to stop? 236 00:13:33,760 --> 00:13:35,720 Speaker 1: Do you think at these two or they're going to 237 00:13:35,760 --> 00:13:41,439 Speaker 1: be spillover effects on other regional lenders or the broader economy. Well, 238 00:13:41,480 --> 00:13:43,840 Speaker 1: I think that's the huge concern right now, and that is, 239 00:13:43,880 --> 00:13:47,080 Speaker 1: in fact a very significant question. It's it's one of 240 00:13:47,080 --> 00:13:51,000 Speaker 1: the reasons why a senior government officials worked feverishly all 241 00:13:51,040 --> 00:13:54,280 Speaker 1: weekends to put this plan in place. You know, to 242 00:13:54,320 --> 00:13:57,200 Speaker 1: the extent that things like bank runs are largely the 243 00:13:57,320 --> 00:14:01,839 Speaker 1: artifacts of psychology and freaked out you know, depositors who 244 00:14:01,840 --> 00:14:04,280 Speaker 1: are worried about losing their deposits to step in and 245 00:14:04,320 --> 00:14:07,439 Speaker 1: say actually, no, we got your back on this depositors, 246 00:14:07,480 --> 00:14:09,559 Speaker 1: even the ones who are above the two hundred and 247 00:14:09,559 --> 00:14:13,080 Speaker 1: fifty thousand SEIIC assurance, We've got your backs on this. 248 00:14:13,520 --> 00:14:16,559 Speaker 1: The hope is that that's going to cause depositors of 249 00:14:16,640 --> 00:14:19,880 Speaker 1: other banks to be less concerned about it. Now, there 250 00:14:19,920 --> 00:14:22,760 Speaker 1: are still several regional banks that I think are you know, 251 00:14:23,000 --> 00:14:25,840 Speaker 1: kind of on that bubble themselves, and I think the 252 00:14:26,360 --> 00:14:30,200 Speaker 1: hope is to increase confidence in the integrity of the 253 00:14:30,920 --> 00:14:33,760 Speaker 1: deposits of those banks as well. And so there is 254 00:14:33,840 --> 00:14:36,240 Speaker 1: you know, almost a sense of moving in aggressively and 255 00:14:36,280 --> 00:14:39,400 Speaker 1: assertively early on, playing a little bit of hardball with 256 00:14:39,480 --> 00:14:42,400 Speaker 1: the managers the banks that are being sailed out as 257 00:14:42,440 --> 00:14:46,920 Speaker 1: a way to affect the psychology of depositors for future banks. Now, 258 00:14:47,040 --> 00:14:51,240 Speaker 1: whether that work is in many ways itself a question 259 00:14:51,400 --> 00:14:55,680 Speaker 1: of psychology, how credible is the governmental move, how credible 260 00:14:55,800 --> 00:14:57,680 Speaker 1: is it going to be that they do it again 261 00:14:57,880 --> 00:15:01,560 Speaker 1: if necessary. But I think the part of the structuring 262 00:15:01,560 --> 00:15:03,960 Speaker 1: of this plan that was that was announced over the 263 00:15:04,000 --> 00:15:07,680 Speaker 1: weekend was also meant to give people at least some 264 00:15:07,720 --> 00:15:10,920 Speaker 1: degree of confidence that the government is not going to 265 00:15:11,040 --> 00:15:14,800 Speaker 1: let contagion run amuck, even if some banks end up, 266 00:15:14,920 --> 00:15:18,880 Speaker 1: you know, having to be liquidated or sold off like STP. 267 00:15:19,600 --> 00:15:21,800 Speaker 1: So Biden said he's going to ask Congress and the 268 00:15:21,880 --> 00:15:25,640 Speaker 1: banking regulators to strengthen the rules for banks to make 269 00:15:25,680 --> 00:15:29,000 Speaker 1: it less likely this kind of bank failure would happen again, 270 00:15:29,480 --> 00:15:33,040 Speaker 1: But no specifics. As you know, during the Trump administration, 271 00:15:33,480 --> 00:15:38,120 Speaker 1: Congress row back some of the strictest post crisis regulations 272 00:15:38,120 --> 00:15:40,800 Speaker 1: from midsize bank So what's your take on what would 273 00:15:40,800 --> 00:15:44,520 Speaker 1: be best to put those regulations back into effect or 274 00:15:44,560 --> 00:15:48,240 Speaker 1: to strengthen the regulations for all banks. Well, that's kind 275 00:15:48,240 --> 00:15:51,080 Speaker 1: of the interesting question right now. You know, after the 276 00:15:51,320 --> 00:15:54,520 Speaker 1: financial crisis and the wake of the financial crisis, fairly 277 00:15:54,560 --> 00:15:58,640 Speaker 1: stringent regulations were in place that in fact would have 278 00:15:58,920 --> 00:16:03,040 Speaker 1: covered many meet in size banks in this range. Those 279 00:16:03,520 --> 00:16:07,240 Speaker 1: in mid twenty eighteen were rolled back, you know, rodly 280 00:16:07,440 --> 00:16:11,960 Speaker 1: under the narrative of we're just you know, eliminating unnecessary 281 00:16:12,040 --> 00:16:15,720 Speaker 1: regulation and opening up small regional banks to lend to 282 00:16:15,840 --> 00:16:18,720 Speaker 1: small businesses and to grow the economy. And you know, 283 00:16:18,760 --> 00:16:21,800 Speaker 1: the taglines are pretty easy to predict here. But what 284 00:16:21,960 --> 00:16:25,720 Speaker 1: that did leave is this kind of open field for 285 00:16:25,840 --> 00:16:29,560 Speaker 1: banks of that size to you know, decide what the 286 00:16:30,080 --> 00:16:33,000 Speaker 1: best approach would be for trying to head their risks, 287 00:16:33,000 --> 00:16:36,080 Speaker 1: and in both of these cases there was a fundamental 288 00:16:36,160 --> 00:16:40,520 Speaker 1: miss calculation. So my sense is that the political winds 289 00:16:40,600 --> 00:16:44,200 Speaker 1: may start to blow in President Biden's favor. Whether those 290 00:16:44,240 --> 00:16:46,760 Speaker 1: winds are going to be strong enough to tip a 291 00:16:46,840 --> 00:16:50,920 Speaker 1: Congress that is less friendly to regulatory interventions remains to 292 00:16:50,960 --> 00:16:55,080 Speaker 1: be seen. But you know, the quaysie, you know, panic, 293 00:16:55,120 --> 00:16:56,600 Speaker 1: I'd say more of a you know, kind of a 294 00:16:56,760 --> 00:16:59,840 Speaker 1: systemic concern that that that really spawned what happened over 295 00:16:59,840 --> 00:17:03,040 Speaker 1: the weekend is definitely going to have at least some 296 00:17:03,080 --> 00:17:07,320 Speaker 1: implications in the political landscape and trying to understand how 297 00:17:07,320 --> 00:17:10,840 Speaker 1: to go about reregulating some of these banks that look 298 00:17:10,920 --> 00:17:13,920 Speaker 1: like they may be more systemically significance than they were 299 00:17:13,960 --> 00:17:16,840 Speaker 1: given credit for. I mean, is a question of putting 300 00:17:16,880 --> 00:17:20,600 Speaker 1: more of the banks under the stricter regulations of Dodd 301 00:17:20,600 --> 00:17:25,320 Speaker 1: Frank or making all the Dodd Frank regulations if both 302 00:17:25,359 --> 00:17:27,800 Speaker 1: are possible. I mean, I think probably the easiest thing 303 00:17:27,840 --> 00:17:31,040 Speaker 1: would really just be to bring back down the threshold 304 00:17:31,080 --> 00:17:33,760 Speaker 1: for the Dodd Frank rules. I don't think anyone is 305 00:17:33,800 --> 00:17:36,280 Speaker 1: worried that some of these larger banks that have to 306 00:17:36,440 --> 00:17:40,240 Speaker 1: undergo routine stress testing and pretty much have the stringent 307 00:17:40,280 --> 00:17:43,080 Speaker 1: requirements that require them to wapp the assets to answer 308 00:17:43,119 --> 00:17:46,200 Speaker 1: a bank run. I don't think anyone has any significant 309 00:17:46,240 --> 00:17:50,080 Speaker 1: concern about the integrity or the solvency of those larger banks, 310 00:17:50,400 --> 00:17:52,840 Speaker 1: So it may well be the case that the easiest 311 00:17:52,880 --> 00:17:57,240 Speaker 1: thing to do would be basically bring that asset threshold 312 00:17:57,280 --> 00:18:00,480 Speaker 1: back down so that it ended up effecting some of 313 00:18:00,480 --> 00:18:04,439 Speaker 1: these more medium sized regional banks in the future. The 314 00:18:04,520 --> 00:18:07,679 Speaker 1: other possibility, of course, is just to increase the regulatory 315 00:18:07,720 --> 00:18:11,760 Speaker 1: oversight or demand of DoD Freak rules across the board. 316 00:18:12,160 --> 00:18:14,600 Speaker 1: That one, you know, I think probably would face a 317 00:18:14,600 --> 00:18:16,639 Speaker 1: fair amount of blowback for the same reason that I 318 00:18:16,720 --> 00:18:20,080 Speaker 1: just noticed that the larger banks out there don't seem 319 00:18:20,160 --> 00:18:23,240 Speaker 1: to be in this same situation. The Dodd Frank Acts 320 00:18:23,520 --> 00:18:26,399 Speaker 1: rules are actually kind of working for them right now, 321 00:18:26,800 --> 00:18:29,200 Speaker 1: and so to say, okay, we're going to ratchet them 322 00:18:29,359 --> 00:18:31,399 Speaker 1: up may not be the you know, the street of 323 00:18:31,480 --> 00:18:35,560 Speaker 1: shooting approach from a policy perspective compared to, you know, 324 00:18:35,720 --> 00:18:38,000 Speaker 1: making sure that the banks that really are at the 325 00:18:38,200 --> 00:18:41,840 Speaker 1: root of some of these problems, which are typically specialty 326 00:18:41,920 --> 00:18:45,800 Speaker 1: concentrated in regional banks, that those have greater degrees of 327 00:18:45,880 --> 00:18:48,880 Speaker 1: oversight in them. So if I were wagering on this, 328 00:18:49,000 --> 00:18:52,960 Speaker 1: I would think that an overall enhancement of Dodd Frank 329 00:18:53,520 --> 00:18:56,800 Speaker 1: requirements is less likely than maybe an extension of them 330 00:18:56,880 --> 00:19:01,719 Speaker 1: to a larger population of banks, or you know, possibly 331 00:19:01,840 --> 00:19:04,919 Speaker 1: you know, causing those those regional banks to you know, 332 00:19:05,680 --> 00:19:09,000 Speaker 1: be more likely to have their assets transferred into some 333 00:19:09,040 --> 00:19:11,199 Speaker 1: of the larger banks, and so that you know, you know, 334 00:19:11,200 --> 00:19:14,960 Speaker 1: auctioning off the assets of a bank in its resolution period, 335 00:19:15,080 --> 00:19:17,159 Speaker 1: you know, those assets may end up wandering to a 336 00:19:17,240 --> 00:19:20,200 Speaker 1: larger bank that is subject to some of those more 337 00:19:20,240 --> 00:19:22,760 Speaker 1: stringent requirements, and that might be in a mechanical way 338 00:19:23,440 --> 00:19:26,000 Speaker 1: to do it. But I would see the more likely 339 00:19:26,040 --> 00:19:28,760 Speaker 1: approach if there is going to be a regulatory response here, 340 00:19:29,000 --> 00:19:33,280 Speaker 1: is to extend some of the Dodd Frank requirements back 341 00:19:33,320 --> 00:19:36,600 Speaker 1: to in the direction that they were before twenty nineteen. 342 00:19:36,720 --> 00:19:39,880 Speaker 1: Thanks so much, Eric, that's professor Eric Talley of Columbia 343 00:19:40,000 --> 00:19:45,159 Speaker 1: Law School. New Life for Relevant Sports Groups plans to 344 00:19:45,320 --> 00:19:49,119 Speaker 1: market foreign soccer teams regular season matches in the US. 345 00:19:49,640 --> 00:19:53,600 Speaker 1: A federal appeals court in Manhattan has revived an antitrust 346 00:19:53,640 --> 00:19:57,639 Speaker 1: suit brought against two of soccer's governing bodies. The Second 347 00:19:57,640 --> 00:20:01,159 Speaker 1: Circuit found it was plausible that FIFA and the United 348 00:20:01,200 --> 00:20:05,960 Speaker 1: States Soccer Federation are enforcing an anti competitive policy that 349 00:20:06,000 --> 00:20:10,440 Speaker 1: divides geographic markets and restricts access to the game. Joining 350 00:20:10,480 --> 00:20:13,520 Speaker 1: me is Stephen Bank, a professor at UCLA Law School. 351 00:20:13,800 --> 00:20:17,960 Speaker 1: For those who don't know soccer, tell us about the 352 00:20:18,000 --> 00:20:23,520 Speaker 1: alleged ban or why relevance efforts to host official season 353 00:20:23,680 --> 00:20:29,119 Speaker 1: games between overseas teams in the US was denied. So 354 00:20:29,680 --> 00:20:35,240 Speaker 1: US Soccer is a member the designated governing member of 355 00:20:35,760 --> 00:20:40,159 Speaker 1: the United States Territory for the international sports governing body 356 00:20:40,440 --> 00:20:46,240 Speaker 1: of soccer, which is FIFA, the Federation International Football Associations. Historically, 357 00:20:46,480 --> 00:20:49,960 Speaker 1: the reason for FIFA is that soccer is such a 358 00:20:51,119 --> 00:20:56,480 Speaker 1: international game gameplayed worldwide, unlike some American sports like American 359 00:20:56,520 --> 00:21:00,520 Speaker 1: football for example, that they wanted to standardize the rules. 360 00:21:00,600 --> 00:21:04,360 Speaker 1: They wanted to create opportunities for teams in different countries 361 00:21:04,440 --> 00:21:09,920 Speaker 1: to compete against each other. So in creating the worldwide game, 362 00:21:10,200 --> 00:21:13,920 Speaker 1: one of the things that they have done is given 363 00:21:14,119 --> 00:21:20,600 Speaker 1: each federation, each governing body in the country jurisdiction control 364 00:21:21,080 --> 00:21:25,480 Speaker 1: over the soccer played in that country. Historically, that's just 365 00:21:25,640 --> 00:21:28,760 Speaker 1: meant that at most you'd have international tournaments like the 366 00:21:28,800 --> 00:21:33,080 Speaker 1: World Cup you'd have some friendlies what they call friendlies, 367 00:21:33,080 --> 00:21:37,000 Speaker 1: we would call scrimmages played in the offseason. So sometimes 368 00:21:37,000 --> 00:21:40,879 Speaker 1: you have tours buy teams from in Europe or elsewhere 369 00:21:40,880 --> 00:21:43,280 Speaker 1: in the world in the US where they're doing kind 370 00:21:43,320 --> 00:21:45,320 Speaker 1: of a preseason training camp, and they'll play some games 371 00:21:45,320 --> 00:21:47,280 Speaker 1: in the US, and so those were all games that 372 00:21:47,359 --> 00:21:49,800 Speaker 1: you have to seek permission from the governing body in 373 00:21:49,880 --> 00:21:52,440 Speaker 1: the local jurisdiction to play in those games. And it's 374 00:21:52,480 --> 00:21:57,240 Speaker 1: only recently with the expansion of fans outside of a 375 00:21:57,400 --> 00:22:01,639 Speaker 1: home country that there's demand and for people to watch 376 00:22:01,840 --> 00:22:05,840 Speaker 1: a team from another country play. So people are watching 377 00:22:05,880 --> 00:22:08,920 Speaker 1: games in other leagues. So it used to be you 378 00:22:09,000 --> 00:22:11,600 Speaker 1: just watched your home league, that's all you did. So 379 00:22:12,359 --> 00:22:14,760 Speaker 1: there's a lot of interest in for example La Liga, 380 00:22:14,960 --> 00:22:18,240 Speaker 1: which is the Spanish first division league. So that has 381 00:22:18,280 --> 00:22:22,080 Speaker 1: generated demand from those leagues to expand their base. They 382 00:22:22,080 --> 00:22:24,640 Speaker 1: don't have to just rely on the fans within their 383 00:22:25,119 --> 00:22:28,280 Speaker 1: within Spain. They can go outside of Spain, and so 384 00:22:28,359 --> 00:22:32,240 Speaker 1: they'd like to mine what is viewed as a relatively 385 00:22:32,320 --> 00:22:36,320 Speaker 1: untapped market at the United States. The rule came about 386 00:22:36,440 --> 00:22:41,560 Speaker 1: because Relevant Sports, which is a soccer promoter. They were 387 00:22:41,640 --> 00:22:45,560 Speaker 1: contacted by La Liga to try to arrange for games 388 00:22:45,560 --> 00:22:47,840 Speaker 1: in the US. Now, that'd be fine, except that they 389 00:22:47,840 --> 00:22:50,800 Speaker 1: were going to have league games in the US. The 390 00:22:50,880 --> 00:22:56,040 Speaker 1: concern in that situation is that if you're trying to 391 00:22:56,040 --> 00:23:00,200 Speaker 1: grow domestic league, especially one that's relatively new and in 392 00:23:00,240 --> 00:23:03,479 Speaker 1: the case the United States, that demand for that league 393 00:23:03,960 --> 00:23:08,359 Speaker 1: would get reduced potentially if a better league and more 394 00:23:08,400 --> 00:23:11,600 Speaker 1: established league, more historical league Black LA Liga was playing 395 00:23:11,600 --> 00:23:14,199 Speaker 1: its games to the US. This is not unique to 396 00:23:14,280 --> 00:23:18,440 Speaker 1: the United States necessarily. This is a concern in lots 397 00:23:18,480 --> 00:23:21,399 Speaker 1: of jurisdictions around the world that there's a few top 398 00:23:21,480 --> 00:23:25,960 Speaker 1: leagues that will kind of dominate the domestic leagues, and 399 00:23:25,520 --> 00:23:30,800 Speaker 1: the only protection the domestic leagues have is that they 400 00:23:30,880 --> 00:23:35,320 Speaker 1: can control what's played in their country. So that led 401 00:23:35,520 --> 00:23:37,720 Speaker 1: the attempt to play a game in the US, which 402 00:23:37,800 --> 00:23:41,440 Speaker 1: when US Soccer is talking about this, originally they were 403 00:23:41,520 --> 00:23:44,280 Speaker 1: kind of slowballing it. They were saying, I don't know 404 00:23:44,320 --> 00:23:46,320 Speaker 1: if we're allowed to do that. This is not a 405 00:23:46,320 --> 00:23:48,680 Speaker 1: preseason game, this is not a scrimmage. This is a 406 00:23:48,840 --> 00:23:51,800 Speaker 1: league game. And FIFA eventually stepped in and issued a 407 00:23:51,880 --> 00:23:55,560 Speaker 1: rule that said you can't play out domestic league match 408 00:23:55,640 --> 00:23:59,480 Speaker 1: outside of your home jurisdiction, and that is the rule 409 00:23:59,600 --> 00:24:03,280 Speaker 1: that is under challenge here in the relevant sports case 410 00:24:03,440 --> 00:24:06,400 Speaker 1: against the United State Soccer Federation and FIFA, that that 411 00:24:06,560 --> 00:24:10,639 Speaker 1: restricts competition in the US. And so in July of 412 00:24:10,640 --> 00:24:15,400 Speaker 1: twenty twenty one, Federal Judge Valerie Caproni found no evidence 413 00:24:15,480 --> 00:24:19,080 Speaker 1: to prove there was illegal conspiracy to ban foreign matches. 414 00:24:19,160 --> 00:24:22,760 Speaker 1: How did she come to that decision? So, just to 415 00:24:22,800 --> 00:24:25,560 Speaker 1: back up a second, there are two requirements really to 416 00:24:25,640 --> 00:24:28,719 Speaker 1: establish a violation under Section one of the Sherman and 417 00:24:28,760 --> 00:24:32,400 Speaker 1: I Trust Act. The first is there's concerted action, so 418 00:24:32,440 --> 00:24:35,879 Speaker 1: there's a conspiracy among people involved, and then and the 419 00:24:35,920 --> 00:24:39,719 Speaker 1: action unreasonably restrains trade. So on the first question of 420 00:24:39,720 --> 00:24:43,560 Speaker 1: concerted action, the issue, which is a much broader issue 421 00:24:43,560 --> 00:24:48,160 Speaker 1: than Soccer or FIFA United State Soccer Federation, is does 422 00:24:48,480 --> 00:24:53,560 Speaker 1: being a member of a trade association mean that you 423 00:24:53,640 --> 00:24:58,240 Speaker 1: are acting in concert on all rules adopted by that association. Right, 424 00:24:58,240 --> 00:25:01,520 Speaker 1: That's the broadest principle that is at issue here. It's 425 00:25:01,520 --> 00:25:03,920 Speaker 1: the reason why the Department of Justice intervened in this case, 426 00:25:03,960 --> 00:25:06,800 Speaker 1: the reason why there's amicus brief filed by a variety 427 00:25:06,800 --> 00:25:10,560 Speaker 1: of essentially non soccer related interests, is that that's a 428 00:25:10,560 --> 00:25:13,280 Speaker 1: broad issue. What does it mean to be in a 429 00:25:13,400 --> 00:25:15,960 Speaker 1: conspiracy or act in concert if you're just a member 430 00:25:16,000 --> 00:25:18,560 Speaker 1: of an association and they have a rule and you 431 00:25:18,600 --> 00:25:22,560 Speaker 1: follow the rule, is that acting in concert? And judgment 432 00:25:22,600 --> 00:25:26,560 Speaker 1: Prony in the lower court concluded that you need to 433 00:25:26,600 --> 00:25:31,760 Speaker 1: allege in your complaint an agreement to agree. That is 434 00:25:32,560 --> 00:25:37,080 Speaker 1: some kind of evidence that the parties agreed before they 435 00:25:37,240 --> 00:25:42,080 Speaker 1: voted on the rule, that hey, we should all vote 436 00:25:42,160 --> 00:25:45,240 Speaker 1: this way because we don't want this competition something like that. 437 00:25:45,760 --> 00:25:51,280 Speaker 1: And the Planets Relevant Sports argued that that was a 438 00:25:51,359 --> 00:25:54,000 Speaker 1: very high burden to show that there was an agreement 439 00:25:54,000 --> 00:25:58,120 Speaker 1: to agree at the complaint stage. So what they're simply 440 00:25:58,200 --> 00:26:00,639 Speaker 1: saying is, hey, there's a rule. All the rule is 441 00:26:00,680 --> 00:26:04,720 Speaker 1: anti competitive, and they remember the association and they all 442 00:26:04,960 --> 00:26:07,280 Speaker 1: they agreed to be bound by this rule that was 443 00:26:07,320 --> 00:26:10,199 Speaker 1: adopted by the association in this case, FIFA, and therefore 444 00:26:10,240 --> 00:26:15,360 Speaker 1: that was enough to allege concerted action. What Judge Caproni 445 00:26:15,480 --> 00:26:19,240 Speaker 1: was doing was establishing a fairly high bar for any 446 00:26:19,320 --> 00:26:23,320 Speaker 1: kind of an anti trust case involving a trade association. 447 00:26:24,080 --> 00:26:27,200 Speaker 1: That's why the Department of Justice intervened in the case, 448 00:26:27,960 --> 00:26:31,840 Speaker 1: not because they cared dramatically about FIFA or US soccer 449 00:26:31,960 --> 00:26:35,840 Speaker 1: or this thick or issue. But they didn't want that 450 00:26:36,000 --> 00:26:39,080 Speaker 1: high a bar to be set on anti trust actions. 451 00:26:39,640 --> 00:26:42,359 Speaker 1: And so that's really where we get to. The second 452 00:26:42,359 --> 00:26:44,639 Speaker 1: circuit is is do you need an agreement to agree 453 00:26:44,720 --> 00:26:47,000 Speaker 1: or is it enough to establish that there is a rule, 454 00:26:47,359 --> 00:26:51,080 Speaker 1: the rule is anti competitive, and the parties are members 455 00:26:51,160 --> 00:26:54,640 Speaker 1: of the association that has the rule. The second Circuit 456 00:26:55,160 --> 00:27:00,159 Speaker 1: disagreed with Judge Caproni. Tell us why they disagreed, what 457 00:27:00,240 --> 00:27:04,720 Speaker 1: their ruling was. Yeah, the second Circuit, their major observation 458 00:27:04,920 --> 00:27:07,600 Speaker 1: was that you shouldn't be able to avoid antitrust liability 459 00:27:07,600 --> 00:27:10,840 Speaker 1: by acting through some kind of a third party intermediary 460 00:27:10,920 --> 00:27:14,439 Speaker 1: like a trade association. That if by being a member 461 00:27:14,480 --> 00:27:16,920 Speaker 1: of a trade association, you agree to be bound by 462 00:27:16,960 --> 00:27:19,000 Speaker 1: the rules of the association, whether you've voted for them 463 00:27:19,080 --> 00:27:23,760 Speaker 1: or not, and the rules are anti competitive, then that 464 00:27:23,760 --> 00:27:27,679 Speaker 1: should be enough to provide direct evidence of concerted action 465 00:27:27,920 --> 00:27:29,760 Speaker 1: and sort of get you in the door. It doesn't 466 00:27:29,800 --> 00:27:32,760 Speaker 1: mean it's an antitrust violation, doesn't mean it's ultimately it 467 00:27:32,840 --> 00:27:35,760 Speaker 1: would be found to be unreasonable restraint on trade, but 468 00:27:35,800 --> 00:27:39,879 Speaker 1: it means that you can't simply say look, I just 469 00:27:39,960 --> 00:27:42,359 Speaker 1: a member. I'm just following the rules. You know, I'm not. 470 00:27:42,480 --> 00:27:45,600 Speaker 1: I didn't actually agree to vote in a certain way. 471 00:27:45,720 --> 00:27:48,160 Speaker 1: I didn't talk to anybody ahead of time. I made 472 00:27:48,160 --> 00:27:51,640 Speaker 1: my decision independently, all the kinds of things Judge Caproni 473 00:27:51,800 --> 00:27:53,919 Speaker 1: was talking about that you don't need to allege that 474 00:27:54,200 --> 00:27:56,080 Speaker 1: you simply need to allege you agree to be a 475 00:27:56,080 --> 00:27:59,040 Speaker 1: member of association where you were going to be bound 476 00:27:59,040 --> 00:28:01,159 Speaker 1: by any rule they had, whether you liked it or not, 477 00:28:01,240 --> 00:28:02,879 Speaker 1: or whether you discussed it with anyone at We're in 478 00:28:03,080 --> 00:28:05,159 Speaker 1: or not, and that that was enough to establish this. 479 00:28:05,240 --> 00:28:08,120 Speaker 1: So that's really the upshot of the Second Circuit ruling 480 00:28:08,200 --> 00:28:10,680 Speaker 1: is that you don't need to allege or establish in 481 00:28:10,960 --> 00:28:13,840 Speaker 1: the complaint in an agreement to agree. If the rule 482 00:28:13,920 --> 00:28:18,720 Speaker 1: itself is the violation, that's enough to establish a concerted action. 483 00:28:19,359 --> 00:28:23,919 Speaker 1: So does this now go back to Judge Caproni for trial? 484 00:28:24,000 --> 00:28:27,560 Speaker 1: What happens next? So it does go back to Judge Caproni. 485 00:28:27,640 --> 00:28:30,320 Speaker 1: Since this was a motion to dismiss, it goes back 486 00:28:30,359 --> 00:28:34,160 Speaker 1: to that stage. So now they vacated the motion to dismiss, 487 00:28:34,440 --> 00:28:39,360 Speaker 1: and it doesn't mean there couldn't be further proceedings before 488 00:28:39,400 --> 00:28:40,920 Speaker 1: you got to a trial, so you can have a 489 00:28:40,920 --> 00:28:43,680 Speaker 1: summary judgment, motion or something else. There might be additional emotions, 490 00:28:43,720 --> 00:28:45,560 Speaker 1: but it means that the case is going to proceed 491 00:28:45,880 --> 00:28:49,040 Speaker 1: and might ultimately end up in trial. At least this 492 00:28:49,160 --> 00:28:52,640 Speaker 1: part of the question unconcerted action. The Second Circuit has ruled. 493 00:28:52,800 --> 00:28:54,800 Speaker 1: There could be other issues there, and there could be 494 00:28:55,080 --> 00:28:57,920 Speaker 1: issues relating to whether it's an unreasonable restraint on trade, 495 00:28:58,040 --> 00:29:00,800 Speaker 1: and then ultimately it could go to trial. So FIFA 496 00:29:00,920 --> 00:29:03,440 Speaker 1: said that it had taken note of today's decision and 497 00:29:03,480 --> 00:29:07,200 Speaker 1: would review it before deciding on its next steps. What 498 00:29:07,400 --> 00:29:11,000 Speaker 1: next steps could it take outside of going back to 499 00:29:11,080 --> 00:29:14,600 Speaker 1: Judge Caproni and having a trial. Well, FIFA could rescind 500 00:29:14,600 --> 00:29:17,360 Speaker 1: the rule. It's actually a policy that they adopted, so 501 00:29:17,560 --> 00:29:21,280 Speaker 1: certainly could rescind the policy. They could revise a policy 502 00:29:21,280 --> 00:29:24,600 Speaker 1: in a way that would cause relevant sports to drop 503 00:29:24,640 --> 00:29:27,080 Speaker 1: the claim. So it could be some kind of a 504 00:29:27,120 --> 00:29:30,640 Speaker 1: compromise measure that you know, there'd be some limits on 505 00:29:30,680 --> 00:29:34,680 Speaker 1: how many games you could play abroad or something like 506 00:29:34,720 --> 00:29:40,040 Speaker 1: that that relevant sports would find reasonable and that FIFA 507 00:29:40,040 --> 00:29:41,880 Speaker 1: could defend. So there could be some kind of a 508 00:29:41,920 --> 00:29:44,280 Speaker 1: settlement there. There There could be a settlement of course, financial settlement. 509 00:29:44,600 --> 00:29:46,880 Speaker 1: It could also go back to its membership and decide 510 00:29:46,880 --> 00:29:51,400 Speaker 1: whether the membership wants to proceed. Typically, we'll go through 511 00:29:51,400 --> 00:29:54,240 Speaker 1: the FIFA Council, which is the kind of executive committee 512 00:29:54,280 --> 00:29:57,520 Speaker 1: of the group, and they could decide how strongly do 513 00:29:57,600 --> 00:30:01,360 Speaker 1: we believe in this, But it's definitely a question of, 514 00:30:01,400 --> 00:30:04,440 Speaker 1: you know, our the litigation costs worth the benefits of 515 00:30:04,480 --> 00:30:07,920 Speaker 1: the policy. One challenge here is is that this is 516 00:30:07,960 --> 00:30:11,760 Speaker 1: a US ruling. That doesn't mean other countries feel the 517 00:30:11,760 --> 00:30:14,040 Speaker 1: same way. So this is one of the challenges for 518 00:30:14,040 --> 00:30:17,760 Speaker 1: an international sports organization which is dealing with multiple jurisdictions, 519 00:30:17,760 --> 00:30:20,600 Speaker 1: and in other countries this may be perfectly fine. So 520 00:30:20,640 --> 00:30:22,560 Speaker 1: they could decide to keep the rule. Why would let 521 00:30:22,760 --> 00:30:26,800 Speaker 1: the United States dictate this. We don't want anyone, for example, 522 00:30:26,840 --> 00:30:29,720 Speaker 1: in the Bundesligue and Germany to play games in Austria 523 00:30:30,400 --> 00:30:32,840 Speaker 1: because we want the Austrian league to have primacy there. 524 00:30:32,920 --> 00:30:35,680 Speaker 1: Otherwise the Austrian league. Why would anyone in Austria watch 525 00:30:35,960 --> 00:30:38,160 Speaker 1: the Austrian League when they could watch the German league, 526 00:30:38,200 --> 00:30:41,120 Speaker 1: you know. So that's there are plenty of other countries 527 00:30:41,200 --> 00:30:44,040 Speaker 1: where this could be an issue. So the idea that 528 00:30:44,080 --> 00:30:48,360 Speaker 1: they would change this dramatically seems somewhat unlikely, although it 529 00:30:48,400 --> 00:30:52,160 Speaker 1: maybe they make an exception in the US alone because 530 00:30:52,160 --> 00:30:56,240 Speaker 1: of this rule. So it could be that they would say, 531 00:30:56,560 --> 00:31:01,480 Speaker 1: we're restricting the ability to stay gain in countries other 532 00:31:01,600 --> 00:31:05,280 Speaker 1: than the US, so that that would be a way 533 00:31:05,280 --> 00:31:08,000 Speaker 1: that okay is the US, it's okay, and the US 534 00:31:08,040 --> 00:31:11,680 Speaker 1: doesn't care about the anti competitive policies in other countries, 535 00:31:11,760 --> 00:31:16,560 Speaker 1: So that might be one possibility. It's more likely since 536 00:31:17,040 --> 00:31:20,040 Speaker 1: that the Uscccer Federation in FIFA will be concerned about 537 00:31:20,040 --> 00:31:24,480 Speaker 1: FIFA member leagues, and it's also more likely that other 538 00:31:24,640 --> 00:31:28,960 Speaker 1: leagues and football players in those leagues might be concerned 539 00:31:29,040 --> 00:31:32,880 Speaker 1: about the additional cost and travel of playing in the US. 540 00:31:32,920 --> 00:31:34,520 Speaker 1: So it may be one of those issues where it's 541 00:31:34,520 --> 00:31:37,880 Speaker 1: not going to be a very frequent thing anyways, but 542 00:31:38,520 --> 00:31:41,520 Speaker 1: that's certainly possible. I do think that this is only 543 00:31:41,520 --> 00:31:45,000 Speaker 1: one piece of the question in the case concerted action, 544 00:31:45,320 --> 00:31:49,880 Speaker 1: So I think they could feel like there's strong pro 545 00:31:49,960 --> 00:31:53,920 Speaker 1: competitive reasons for the rule, and that might be enough 546 00:31:53,960 --> 00:31:57,400 Speaker 1: to survive the nitrust challenge. So, for example, they could argue, 547 00:31:57,920 --> 00:32:00,240 Speaker 1: you know, the case ever came to trial, they could 548 00:32:00,320 --> 00:32:05,200 Speaker 1: argue that by allowing La Lagua to play home games 549 00:32:05,280 --> 00:32:08,520 Speaker 1: or play games in the United States. That would destroy 550 00:32:09,240 --> 00:32:11,800 Speaker 1: not just Major League Soccer, but the United Soccer League 551 00:32:11,840 --> 00:32:14,600 Speaker 1: and the National Independent Soccer Association NISSA, which is a 552 00:32:14,640 --> 00:32:19,160 Speaker 1: third division league, and in those situations there'd be less 553 00:32:19,200 --> 00:32:23,160 Speaker 1: soccer in the US. Then if you had not played 554 00:32:23,280 --> 00:32:25,160 Speaker 1: law league games here, and if you did this, if 555 00:32:25,160 --> 00:32:29,560 Speaker 1: you can imagine this worldwide, there'll be five leagues maybe worldwide, 556 00:32:29,600 --> 00:32:32,120 Speaker 1: and no domestic league would would be able to survive. 557 00:32:32,200 --> 00:32:34,240 Speaker 1: And if that's the case, then we'd have less overall 558 00:32:34,240 --> 00:32:36,200 Speaker 1: soccer games for people to watch, which is bad for 559 00:32:36,280 --> 00:32:40,520 Speaker 1: competition because they can raise ticket prices and lower wages 560 00:32:40,600 --> 00:32:43,440 Speaker 1: because there's not alternative employers, all sorts of the pro 561 00:32:43,480 --> 00:32:47,000 Speaker 1: competitive arguments. And so in that sense, if FIFA really 562 00:32:47,040 --> 00:32:49,800 Speaker 1: wants to stick to its guns and US Soccer, you know, 563 00:32:49,800 --> 00:32:52,240 Speaker 1: they have some arguments they could make for why this 564 00:32:52,560 --> 00:32:55,360 Speaker 1: rule should be allowed. So this is not a victory 565 00:32:55,400 --> 00:32:58,480 Speaker 1: like final victory for relevant sports. It's probably more it's 566 00:32:58,480 --> 00:33:01,000 Speaker 1: a victory for the Department Justice and some of these 567 00:33:01,000 --> 00:33:04,800 Speaker 1: amicust filings that you can file an anti trust lawsuit 568 00:33:05,000 --> 00:33:07,840 Speaker 1: against the trade association, and there are a lot of those. 569 00:33:08,120 --> 00:33:10,800 Speaker 1: The NCUBA is a trade Association, other sports organizations, but 570 00:33:10,840 --> 00:33:14,440 Speaker 1: not just for sports organizations, professional societies, all that. It's 571 00:33:14,440 --> 00:33:16,680 Speaker 1: a really a victory for that. Thanks for being on 572 00:33:16,720 --> 00:33:20,680 Speaker 1: the show. That's Professor Stephen Banks of us LA Law School. 573 00:33:20,960 --> 00:33:23,240 Speaker 1: And that's it for this edition of the Bloomberg Laws Show. 574 00:33:23,320 --> 00:33:25,800 Speaker 1: I'm June Grosso and you're listening to Bloomberg