December 31, 2013

Another Milestone...20,000 Unique Views

I just wanted to take a moment to thank those of you who regularly read this blog for your support, and especially those of you who share the posts on LinkedIn and Twitter.  The blog reached 20,000 unique views just prior to year-end, which tells me that people find the information posted here useful.  I hope to continue to provide relevant, accessible legal analysis through this blog for many years to come.  If you have a topic that is relevant to financial institutions or other business organizations that you would like to see addressed on the blog, please let me know!

Best Wishes,


December 26, 2013

Reminder: Several Changes to North Carolina Law Take Effect January 1, 2014

Don't forget!  Several changes to North Carolina law enacted by the General Assembly in 2013 will become effective on January 1, 2014.

1.  I have written about changes to North Carolina's corporate statute that will become effective January 1, 2014, here. They include:
  • Clarification of the authority of a board of directors to delegate to officers the authority to issue equity in the company. Clarification of the ways in which shareholders meetings can be conducted using newer technology (remote electronic communication).
  • Clear authorization of “force-the-vote” provisions in transactions requiring shareholder approval.
  • Creation of a safe harbor enabling corporations to know with certainty that certain sales of assets do not require shareholder approval. Provision for sister subsidiaries (corporations that are 90% owned by a common parent corporation) to merge with each other using a “short-form” process.
You can read about Senate Bill 239, enacted as Session Law 2013-153, in greater detail here.

2.  Chapter 57C of the General Statutes, which formerly governed limited liability companies, will be replaced by a new Chapter 57D effective January 1.  I wrote about the changes here.  The changes from existing law include the following:
  • Rights and duties of parties under the LLC Act can be modified or waived by an agreement.
  • Members' rights to access certain company information are spelled out in the statute, as are limitations.
  • The statute expressly allows for the appointment of "officials" besides Managers (e.g., President), and the officials need not also be Managers.
  • Provisions regarding contributions and distributions have been simplified.
  • The statute makes explicit the distinction between a purely economic interest in an LLC and a Membership interest (which confers authority).
  • Oral amendments to an operating agreement will not be enforceable if the operating agreement requires that amendments be in writing.
  • Oral agreements between parties to an operating agreement would not affect any inconsistent written provision in the operating agreement to the detriment of non-parties to the operating agreement that relied on the written operating agreement.
  • In the event of a conflict between the operating agreement and the articles of organization, the operating agreement would prevail as to parties to the operating agreement and company officials, and the articles of organization would prevail as to anyone else who reasonably relied on the filed document.
  • Provisions relating to low-profit LLCs were deleted.
  • Specific items governing out-of-state LLCs were made consistent with the treatment of out-of-state corporations under the Business Corporation Act.
The new statute will apply to existing LLCs.  You can read the full text here.

3.  Changes to North Carolina's tax laws also become effective on January 1.  Session Law 2013-316, also known as House Bill 467, or the Tax Reduction Act, can be read in full here

4.  Session Law 2013-403, also known as House Bill 565, amends the Real Estate Appraisers Act.  Changes that become effective on January 1 include new educational requirements.  New applicants for a real estate appraiser license will be required to have an associate's degree, and new applicants for certification as a residential real estate appraiser will be required to have a bachelor's degree.  You can read the full text of the legislation here.

You can see all of the North Carolina legislation that will become effective on January 1, 2014 here.

Best wishes for a prosperous 2014!

December 11, 2013

The Volcker Rule Is (Finally) Here

Back in 2011, I wrote about Section 619 of the Dodd-Frank Wall Street Reform and Consumer Protection Act, commonly known as the "Volcker Rule."  (See Do Community Banks Need to Worry About the "Volcker Rule"?)  At that time, the SEC and the federal banking regulators had just issued a proposed rule for public comment.  Two years later, the final rule is being released.  To say the rule is behind schedule is a bit of an understatement--the Act required the agencies to promulgate a final rule by July 21, 2011. 

Remember the Volcker Rule?
Given the amount of time since the Volcker Rule was proposed, it seems appropriate to refresh our recollections as to the history and intent of the rule.  The Volcker Rule is a concept advocated by the eponymous former Federal Reserve Board Chairman Paul Volcker, who argued that proprietary securities trading by federally-insured banks introduced unacceptable risk to the Deposit Insurance Fund.  In simple terms, Volcker argued that because bank deposits are backed by a government assurance (the Deposit Insurance Fund), banks should not engage in trading that exposes the DIF to (much) risk. 


In 1933, the Glass-Steagall Act forced a separation of commercial banking from investment banking and brokerage activities. This division more or less remained the rule until the Gramm-Leach-Bliley Act of 1999.  Some observers attributed the repeal of the Glass-Steagall restrictions to the financial crisis of 2008, and the Volcker Rule found its way into the massive reform bill known as the Dodd-Frank Act.

The Final Rule

Section 619 of the Dodd-Frank Act contains restrictions on a financial institution's ability to engage in "proprietary trading" or be associated with a private equity/hedge fund.  Proprietary trading is defined as “trading activity” in which a “banking entity” acts as “principal” in order to profit from “near-term” price changes.   Banks often take positions in government securities as a way to invest cash productively and safely, or as a risk-management tool, and concerns arose that the Volcker Rule would cover such trading.

Following considerable input from the banking sector, the final rule differs from the original proposal in some important ways.  Below are some highlights of the final rule.

- The final rule exempts proprietary trading in securities issued by the U.S. Treasury, Government-Sponsored Enterprises, municipalities and the FDIC.
- Banks with less than $10 billion in assets that do not trade in covered instruments are exempt from the compliance program requirements of the rule, and CEOs are not required to submit an attestation that their banks have a sufficient compliance program in place.
- Banks under $10 billion that do engage in covered activities can meet the "compliance program" requirements by simply including references to the Volcker Rule in their existing policies and procedures addressing only the activities that the community bank actually conducts. 
- Also exempt are trading activities:
  • as agent, broker or custodian;
  • through a deferred compensation or pension plan;
  • as trustee or in a fiduciary capacity on behalf of customers;
  • to satisfy a debt previously contracted;
  • repurchase and securities lending agreements; and
  • risk-mitigating hedging activities. 
The Clock Is Ticking

The final Volcker Rule becomes effective April 1, 2014 (though the complete compliance deadline has been pushed back for banks under $10 billion to July 21, 2015).   

For more information, you can read the entire final Volcker Rule here (a mere 964 pages).