Nicola Persico

Minor, Dylan and Nicola Persico. 2013. The Volcker Rule: Financial Crisis, Bailouts, and the Need for Financial Regulation. Case 5-412-753 (KEL703).

In response to the potential collapse of large financial institutions in 2007, the U.S. government committed trillions of dollars to loans, asset purchases, guarantees, direct spending to provide fiscal stimulus, expansionary monetary policy, and bailouts of various private financial institutions. The bailouts were especially controversial because public money was used to protect private financial institutions and their wealthy executives while ordinary citizens received no such protection.

One outcome of the government’s response was the proposal to enact into law the Volcker rule, which prohibited banks from engaging in proprietary trading, or trading for their own—not their clients’—benefit. Proprietary trading was believed to generate up to 10 percent of total trading revenues, which would have exceeded $5.9 billion in 2010 for the six largest American banks alone.

If the Volcker rule were to become law, government agencies, including the Federal Reserve, the Securities and Exchange Commission, the FDIC, and the Office of the Comptroller of the Currency, would write the detailed regulations that would implement the law. These agencies employed civil servants but were run by political appointees with technical backgrounds. After issuing a notice of proposed rulemaking the agencies would solicit comments from the public, which would help shape the regulations.

Executives of large banks needed to decide how to respond to this potential change in their business environment.

Persico, Nicola. 2015. Electronic Cigarettes in the EU: The Political Economy of Product Regulation. Case 5-215-255 (KEL927).

You are the CEO of an e-cigarette company that has just been acquired by a major tobacco company. Your company operates in the European market. The July 2013 draft of the EU Tobacco Products Directive (TPD) recently has been crafted by the European Commission, but it has not yet been examined by the EU Parliament and its Council. The draft proposes that all e-cigarette products be classified as medical devices, regardless of nicotine content. This is the strictest available mode of regulation. If the directive goes into effect as written, e-cigarettes would have to undergo costly and lengthy clinical trials to receive approval and face much stricter marketability restrictions.

The case details the state of the e-cigarette industry in 2013, including consumer data, distribution, competition from similar products, and public health concerns. Students will analyze the current regulatory environment, determine what outcome would be most favorable to the e-cigarette industry, and identify the ways to achieve that goal.

Persico, Nicola and C. James Prieur. 2015. Conseco Senior Health Insurance: A Strategic Problem of Reputation and Regulation. Case 5-313-502 (KEL898).

In 2007 Conseco’s CEO, C. James Prieur, faced a complicated set of problems with his company’s long-term care (LTC) insurance subsidiary, Conseco Senior Health Insurance (CSHI). CSHI faced the threat of congressional hearings and an investigation by the U.S. Government Accountability Office, triggered by an unflattering New York Times article alleging that CSHI had an unusually large number of customer complaints and was denying legitimate claims. This threat came in addition to broader systemic problems, including the fact that the entire LTC industry was barely profitable. What little profitability existed was dependent on the goodwill of state insurance regulators, to whom the industry was highly beholden for approvals of rate increases to keep it afloat. Furthermore, CSHI had unique strategic challenges that could not be ignored: First, the expense of administering CSHI’s uniquely heterogeneous set of policies put it at a disadvantage relative to the rest of the industry and made rate increases especially necessary. Second, state regulators were negatively predisposed toward Conseco because of its notorious reputation and thus were often unwilling to grant rate increases. Finally, CSHI was dependent on capital infusions totaling more than $1 billion from its parent company, Conseco, for which Conseco had received no dividends in return. Faced with pressure from Conseco shareholders and the looming congressional investigations, what should Prieur do? Students will discuss the available options in the context of a long-term relationship between Conseco and state insurance regulators. Prieur’s solution to this problem proved to be innovative for the industry and to have far-reaching consequences for CSHI’s corporate structure.