Week in Review

IN THE NEWS

• The U.S. Supreme Court blocked an order by a federal judge that would have paused a Bureau of Alcohol, Tobacco, Firearms, and Explosives (ATF) regulation of firearms sold in kits. These firearms, which are difficult to trace after a buyer assembles them, are often called “ghost guns.” The ATF regulation was already upheld by the Supreme Court in August 2023. The federal judge, however, issued an injunction in September barring the rule from going into effect, determining that the plaintiffs should have individualized protection against the rule until the judicial process is complete.
• The Securities and Exchange Commission (SEC) adopted new rules to provide greater transparency around short selling, an activity where investors bet that a stock’s price will fall. The first rule requires institutional investment managers with large short selling positions to file a form each month with the SEC detailing their short activity. The SEC will then collect and publish this data. The second rule requires securities lenders to report in detail the terms of each loan they make. The rules are a response to the 2021 GameStop trading episode, where individual investors engaged in shorting tactics that caused some investors to sustain great losses.
• The Food and Drug Administration (FDA) proposed a ban on hair-straightening products that contain or emit formaldehyde, a highly toxic gas. Research found that Black women, who may use these products, are at an increased risk of developing uterine cancer and infertility problems. Even though FDA had previously discouraged consumers from using products that contain formaldehyde, the current law does not require FDA to approve these products before they go on sale.
• The Federal Housing Administration announced a new policy expanding access to mortgage financing for homes with rental units on the same property as the primary residence. The policy allows borrowers to include rental income generated from housing units connected to or located on the same property on their mortgage application. More first-time homebuyers now qualify for loans from the agency, which also adds to the supply of housing. The Administration noted that the announcement supports the Biden Administration’s goals of combatting affordable housing challenges and increasing access to homeownership.
• The U.S. Fish and Wildlife Service issued a rule removing 21 species from the Federal List of Endangered and Threatened Wildlife due to probable extinction. The initial proposed rule listed 23 species, but after public comment and surveys, the Fish and Wildlife Service chose to keep the plant Phyllostegia glabra and the ivory-billed woodpecker on the endangered list, as these species may not be extinct. Scientists disagreed about the status of the ivory-billed woodpecker, so the Fish and Wildlife Service plans to extend the deadline for a final determination and issue an updated publication in the future.
• The Internal Revenue Service issued a notice of proposed rulemaking that would modernize its regulation of the sale of seized property. The proposed rule would update existing seizure practices by incorporating newer technologies. For example, the proposed revisions would permit online sales and allow debit and credit card payments. The agency argued that these revisions will increase the efficiency of sales and benefit taxpayers by making the sales process “more likely to produce higher sales prices.”
• The U.S. Postal Service issued a notice of proposed rulemaking to adjust domestic mailing services standards. The proposed changes adjust the price of mailing services and include an automated processing option for bulk mailing in place of the current manual process. The proposed price adjustments would take effect on January 21, 2024.
• The Agricultural Marketing Service of the U.S. Department of Agriculture (USDA) proposed a rule revising the U.S. Standards for Grades of Processed Raisins. This rule will reduce the number of capstems allowed in raisins. Capstems are small stems that attach the raisins to the bunch. USDA stated that this change would “reflect current industry practices” as major technological advances since 1978 have improved the raisin cleaning and sorting process. The Agricultural Analytics Division of USDA, however, estimated that only about 1 percent of raisin inspections would result in a different grade under the new rule.

WHAT WE’RE READING THIS WEEK

• In a recent paper, Zachary Liscow, a professor at Yale Law School, and Cass R. Sunstein, a professor at Harvard Law School, analyzed the practice of benefit-cost analysis in agency spending decisions. Liscow and Sunstein observed that, to allocate limited resources, agencies perform a benefit-cost analysis to enhance efficiency. Liscow and Sunstein argued, however, that efficiency is the wrong goal—instead, agencies should focus on maximizing welfare. Liscow and Sunstein concluded that adopting this focus of maximizing welfare will correct current biases that favor granting funds to the wealthy.
• In a recent report, Viral V. Acharya, a professor at the New York University Stern School of Business, and several coauthors examined how banking stress tests can and should incorporate risks related to climate change. Stress tests are exercises through which regulators and bank managers use sophisticated models to predict how a bank’s financial health would respond to adverse events. Even though the Board of Governors of the Federal Reserve System has yet to account for climate risk in its regulatory activity, several other central banks have begun to consider climate risk in their forecasting. The Acharya team concluded, that the physical risks of climate change, including floods and wildfires, coupled with transition risks, such as policy and technological changes, could impact the value and stability of bank investments and loans.
• In a forthcoming article, Isa Alade, a partner at the law firm Banwo & Ighodalo, argued that the corporate governance mistakes made by financial institutions leading up to the global financial crisis in 2007-2008 are being repeated by financial technology (fintech) companies today. Alade explained that, although new regulations and laws made changes to corporate governance after the crisis, they have not improved governance of fintech firms due to inherent differences in corporate structure. Alade proposed reforms to ensure another systematic shock does not occur, such as altering the liability framework for directors and managers and requiring a cross-industry governance framework.

EDITOR’S CHOICE

• In an essay in The Regulatory Review, Annie Blackman, now an associate at the law firm Arnold & Porter, examined a proposed solution to the financial hardship facing the U.S. Postal Service. Blackman noted that some policymakers, including Senator Elizabeth Warren (D-MA) and Senator Bernie Sanders (D-VT), suggested that the Postal Service should offer basic community banking services like check cashing. Blackman explained that the U.S. Postal Savings System offered these services in the early 20th century, but the government abolished the agency. Blackman concluded that the Postal Service could be a “perfect conduit for community banking” given the agency’s commitment to public service.