Tag Archives: Alibaba

Alibaba Firing Highlights Struggles Of China’s #MeToo Movement

THE CASE OF the Alibaba employee who accused her supervisor and a client of sexual assault during a business trip continues to be a touchstone for China’s incipient but stymied #MeToo movement and its struggle to turn online outrage into real-world change.

In the latest development, the woman who made the original accusation in August, known only as Ms Zhou, says the tech giant has fired her, claiming in the dismissal letter that she had spread falsehoods that had damaged the company’s reputation.

Reading between the lines, the company seems exasperated by her refusal to reach a settlement to leave the company quietly and let the whole matter get swept under the carpet. There is, of course, no reason that she should.

Zhou has said she went public with her accusation in the first place because the company had not taken her complaint seriously. In the wake of the online furore that followed, Alibaba fired the supervisor. Several executives left the company over the matter, including the head of the division where Zhou then worked. He has now sued her for defamation, seeking a public apology and token compensation for reputational damage.

Police arrested the supervisor, but prosecutors in Jinan City, where the alleged rape took place, dropped the case. They said that the evidence was insufficient to sustain a rape charge and while the supervisor had committed ‘forcible indecency’, that did not constitute a crime. That caused another flare of online outrage.

The supervisor was ordered to serve 15 days of administrative detention but appears to have been released almost immediately. The client involved, whom his employer also sacked, may still be under police investigation.

Alibaba, which had previously been censorious of ‘forced drinking culture’, said after the criminal case was dropped that the facts of the case had been ‘clarified’. It has yet to publicly comment on the dismissal, which occurred on November 24. Yet, it does seem to have shot itself in the foot by firing Zhou.

One unusual aspect of Zhou’s case is that it has remained a matter of open discussion and has not been censored online. In that, it stands in contrast to earlier high-profile cases in which accusers have found their social media accounts suspended or filtered. Similar fates have befallen their supporters to prevent any coordinated action.

Zhou’s case stands in even more contrast to that of tennis star Peng Shuai. She has been erased from the internet in China since early November when she posted a lengthy accusation on her Weibo account that a former vice-premier had sexually assaulted her.

Any allegation of wrongdoing against a senior political figure would be censored (at least until political guilt had been established). In Zhou’s case, authorities may have seen political advantage in allowing expressions of public opprobrium for a tech company that was in their crosshairs for other reasons.

The Zhou case is not unusual in not making it to court. Sexual harassment cases rarely do. There is a high bar for evidence, usually requiring video or photographs of the incident, thus increasing the heavy burden of proof that already falls on the victim. The court of public opinion can seem like the only alternative for victims.

However, as in Zhou’s case, that puts them at risk of getting sued for defamation by their alleged harassers. The courts tend not to rule for the victims of sexual assault in that regard, either.

The new civil legal code that came into effect in January allows an employee or other individual to sue for sexual harassment and puts a general obligation on organisations to prevent such behaviour and investigate cases. However, there is no liability specified for not doing so and no protection for victims against retaliation.

As with all laws in China, the application and implementation matter. The rule of law transmutes into rule by law as soon as a Party interest is involved.

The Party does not want to allow the development of any identity politics or the grassroots activism that goes with it. Any signs of feminist or #MeToo movement activity get shut down quickly.

Such activism has shifted public attitudes on sexual harassment and assault in other countries and started to change norms. Without it, that will not happen in China.

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Ant Knuckles Down

Logos of Ant Group and Alipay

ANT GROUP HAS applied to become a financial holding company. That will put Jack Ma’s fintech group spun out of Alibaba under central bank oversight. Thus authorities tighten their grip a significant notch over the sprawling fintech sector.

The somewhat imposed decision on Ant will require it to restructure itself as a payments services company. That was what regulators told the company to do after forcing the pulling of Ant’s proposed blockbuster initial public offering (IPO) last November. However, the first go-round did not pass muster. The central bank and the three other top financial regulators hauled in Ant executives on Monday for further talks.

Following those, the People’s Bank of China announced the company will now adopt its new structure as part of a ‘comprehensive and feasible rectification plan’ following its coming under strict regulatory oversight last year.

Critically, Ant has agreed to decouple its Alipay mobile payments app from other financial services it offers, such as unsecured online lending via its Huabei virtual credit card and Jiebei consumer loans. The company says its focus will be on enabling micro-payments for consumers and small-and-medium-sized enterprises, which is how it started. As part of this, it will set up a personal credit reporting company and improve consumer data protection. A separate (regulated) Ant consumer finance company will run Huabei and Jiebei.

The company also says it will improve its consumer data protection, rectify monopolistic behaviour and shrink the assets under management of Yu’e Bao, its giant money-market mutual fund. These changes all toe the new party lines for reining in the internet giants and scaling back highly leveraged lending.

Ant also contritely says it will plan its growth ‘within the national strategic context’ and ‘contribute to the new development paradigm of domestic and international circulations’. This reinforces the view this Bystander expressed previously about the platform companies being marshalled into becoming a ‘strategic height’ of the economy and a competitive advantage for China internationally.

The freewheeling days for fintech are now over. Ant’s affiliate Alibaba’s record 18.2 billion yuan ($2.8 billion) antitrust fine was further warning that Ant and all the other fintech companies will have to behave like traditional financial institutions and do as their regulators tell them in line with national policy objectives.

Where this leaves Ant’s IPO is uncertain. The restructuring will make the group less valuable than the $34 billion it was initially hoping to raise. Alipay has more than one billion users in China and holds approaching three-fifths of the $17 trillion mobile payments market, well ahead of its closest rival Tencent’s WeChat Pay’s two-fifths. That dominant market share tied together a vast and detailed trove of consumer data collected across Alibaba and Ant.

Weakening the ability to use Alipay across all its services will reduce those market shares, which is also the intent of new draft measures announced in January to curb market concentration in online payments.

Update: The State Administration for Market Regulation has told 34 internet platform companies, including Tencent, ByteDance, Pinduoduo, Baidu and JD.com, to get any anti-competitive practices sorted out within the next month — confirmation, as if it was needed, that the crackdown on Ant Group and Alibaba is neither all about Jack Ma nor over.

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Alibaba Antitrust Fine Is As Instructive As Punitive

Screenshot of Alibaba website

THE ANTITRUST FINE on Alibaba is hefty — a record in yuan terms –but not as punitive as it could have been.

The 18.2 billion yuan ($2.8 billion) that the e-commerce giant will have to pay for abusing its market dominance tops the $975 million imposed on the US chipmaker Qualcomm in 2015 but is equivalent to only 4% of Alibaba’s revenues. Qualcomm’s was 8%, and the maximum penalty authorities can impose is 10%. Further, the State Administration for Market Regulation (SAMR) took a narrow view of Alibaba’s revenue, counting just those from its e-commerce businesses.

None the less, this amounts to more than just a slap on the wrist. It also reinforces a message that has been repeatedly sent for several months.

Authorities are reining in the power of the tech platform giants, among whom Alibaba and its sprawling empire of associated businesses is the poster child. They thrived in a sector that never had the moderating influence of large state-owned enterprises. Alibaba was disingenuous when it said in its post-fine letter of contrition:

Alibaba would not have achieved our growth without sound government regulation and service, and the critical oversight, tolerance and support from all of our constituencies have been crucial to our development.

It and its main rival Tencent grew massive because of the absence of state guidance. Party leadership is being plain that the Party calls the shots, no matter how large the tech platforms’ social and economic influence grows. The da y’s of light regulation are over. The tech sector will become subject to the same level of regulatory oversight as any other.

Attacking Alibaba and its main rivals on antitrust grounds – the specific charge against Alibaba is that it restricted competition by forcing vendors on its Tmall and Taobao online shopping platforms to deal exclusively with it — provides consumer-protection gloss to the actions. A dozen companies were fined last month for antitrust violations, including Tencent and Baidu (the other two of the ‘big three’ Chinese internet giants) and the ride-hailing app Didi Chuxing.

Financial regulators are also concerned that the rapid expansion of fintech — services such as AliPay — beyond payments systems is creating new avenues of unregulated shadow banking that will add to the overall leverage within the economy that already greatly concerns authorities. Preventing what is termed ‘disorderly expansion of capital’ is now policy. Regulators forcing Alibaba’s spun-off fintech, Ant Group, to pull its proposed blockbuster $37 billion initial public offering last November was another indication of that.

Jack Ma, Alibaba’s founder and China’s most prominent and outspoken tech billionaire inside and outside the country, has been particularly in authorities’ crosshairs. Last week, his Hupan University, an elite business academy that teaches entrepreneurship, was made to suspend new enrolments. Elite educational establishments outside Party control are viewed with official distrust.

Alibaba has also been pressed into divesting its media assets. It owns video streaming and sharing sites in China and Hong Kong’s leading English-language newspaper, the South China Morning Post.

More worrying is that the crackdown may bring restrictions on its ‘secret sauce’: its ability to combine the many businesses it has diversified into, from physical retail to food delivery and cloud computing, with its core e-commerce and social platforms, thus turbo-charging its ability to cross-sell.

In November, SAMR released draft rules to prevent price-fixing, predatory pricing and unreasonable trading conditions. They also included restrictions on using data and algorithms to manipulate the market, which could curtail the platforms from data cross-subsidisation to target specific customers. That would be a wounding blow to the big platforms’ business models.

It may also bring them closer into line with national economic objectives. By making the platform companies exit non-core operations and forcing more competition in their core business, Beijing may be co-opting them to the cause of global leadership in high-tech industries. Without access to the easy money from monopolistic practices, the tech giants will instead undertake more fundamental R&D and innovation to support national technological self-sufficiency. Or at least, so the theory goes.

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Jack Ma Peeks Above The Parapet

Screenshot of Jack Ma, founder of Alibaba and Ant Group, seen in a video clip posted to social media on January 20, 2021, addressing an audience of rural teachers by video link.

JACK MA’S REAPPEARANCE speech was as humble and dutiful as his previous one, last October, was caustic and critical.

After a nearly three-month absence from public view that sparked rumours that the high-profile billionaire founder of Alibaba and its fintech spin-off Ant Group had been detained by authorities displeased by his dismissive criticisms of China’s financial regulators, Ma joined a meeting of 100 rural teachers by video link. (The screenshot above is from a clip posted to social media.)

His presentation touched on two issues dear to the heart of Party leadership: that the country had eradicated poverty; and that entrepreneurs had a duty to serve society, in this case by supporting teachers and improving rural education.

It was unclear where Ma was speaking from, nor did he mention where he had been of late.

Between Ma’s two public appearances, regulators had forced the last-minute pulling of Ant Financial’s initial public offering and started an antitrust investigation into Alibaba as part of a broader reining-in of the private tech companies.

Ma, too, will find himself on a tighter leash and make sure not to strain against it. The same will be true for his companies, as this Bystander suggested previously.

However, his reappearance alone will be of some reassurance to investors. Nonetheless, that does not give China’s tech giants and their leaders any latitude to step out of line.

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Beijing Reins In China’s Internet Giants

Screenshot of Alibaba web page, captured November 2020

CHINA’S PRIVATELY OWNED internet companies flourished in large part because they created a de novo area of the economy and thus had no state-owned competitors from the outset. That space is now being closed down, or at least being put under state sway.

New restrictions on the fintech sector led to last week’s abrupt suspension of Ant Group’s proposed blockbuster initial public offering and a public embarrassment of Jack Ma, its billionaire founder. This week, draft regulations have been announced that, when implemented (formally they are out for public comment), would curb monopolistic practices by internet platform and e-commerce companies such as Alibaba Group, also founded by Ma, and Tencent Holdings, the operator of We Chat founded by another of China’s richest men, Pony Ma.

The corporate behaviour that would be proscribed includes collusion to share sensitive consumer data, alliances to squeeze out smaller rivals and to subsidise services at below cost to eliminate competitors. The internet platforms may also have to apply for an operating licence if they use the governance structure known as a Variable Interest Entity, which is standard for internet companies as it lets them have foreign investors and list on overseas exchanges but exists in something of a grey area when it comes to Beijing’s blessing.

After a meeting earlier this month between antitrust and cyberspace officials and two dozen tech giants, authorities issued a statement giving fair warning of the new mood:


Internet platforms are not outside the reach of antitrust laws, nor are they the breeding ground for unfair competition.

Nothing will happen immediately. The State Administration of Market Regulation watchdog is taking public comments until the end of this month. As always, it will be the application of the administrative rules once the regulations are formalised that will matter.

The State Council has also said new regulations on internet transactions will be coming next year. Yet the message from the Party to some of the country’s most powerful companies and private billionaires is clear. The bonus for authorities is that the new rules should also bring some protections for consumers and small businesses, which will be popular.

China is far from the only country struggling with the power and disruptive horizontal spread of big tech. The EU and the United States are facing variants of the same issue.

However, in China, the Party has the additional complication of having to stop the horizontal spread of the platforms into areas, such as banking, in which state-owned enterprises are not only dominant but also essential policy tools.

Authorities also have to balance promoting internationally competitive Chinese tech companies with keeping them under firm control at home — a microcosm of what will be one of the most significant challenges for the Party in moving the country up the development ladder to the innovation-based economy.

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Regulators Rule

WHEN WE SAID we thought that the initial public offering (IPO) of Jack Ma’s Ant Group might come to be seen as an inflexion point in global capital markets, we thought it would be because raising such a considerable sum –$35 billion — outside of the United States would be a milestone in the development of China’s capital markets. But the abrupt pulling of the IPO of the fintech affiliate of Ma’s Alibaba group just days ahead of its scheduled launch because of ‘unexpected changes in the regulatory environment’ lays down a marker of a different sort, the power of China’s regulators.

Authorities from the People’s Bank of China and three other top financial regulators summoned Ma on Monday to inform him they had belatedly detected shortcomings, reportedly in Ant’s lucrative micro-lending units that will require reapplications for national operating licences and capital increases and restructurings. These will be necessary to comply with new regulations that took effect on November 1 to rein in systemic risks posed by companies that straddle at least two financial business lines. Ant’s businesses range from payments to lending, asset management and insurance.

This was no quiet word to the wise, but a none-too-thinly-veiled reminder to a business — and its owner — that is a threat to China’s state-run lenders, and thus by extension to the administration of state capitalism, that political loyalty and effectiveness as a policy instrument is just as expected of private companies as state-owned enterprises. Whether further actions are taken against other parts of Ant’s business will indicate the severity of the warning.

Ma may now judge as injudicious his recent likening of the big, state-owned banks to pawn shops and criticism of the Basel Accords, which set out capital requirements for banks, as a club for geriatrics.

The latter was part of a provocative futurist speech delivered in front of many of the country’s top financial regulators. They hold to the old-fashioned view that risk management, not innovation and growth is the foundation of a sound financial system. Nor will they have cared for Ma’s argument that China has no systemic financial risk as it has no financial system, and thus no need for systemic risk management. Authorities believe with good reason that there is cause to be wary of financial instability.

Ma is not the first fintech entrepreneur to hold that regulators and legacy lenders are dinosaurs, out of touch with digital innovation and the financial systems of tomorrow. He will not be the last to learn that until tomorrow comes, it is the innovators who have to comply with the regulators, not the other way round.

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Will Unravelling China’s VIEs Pull The Rug Out From Under Alibaba?

IS THE LAW of unintended consequences — or intended ones — in play with the new draft revisions to China’s foreign investment law? And if the later, whose intentions need to be examined?

What may be at stake is control of three of the fastest growing sectors of the Chinese economy — the internet, e-commerce, and cloud computing. Privately owned companies, not state-owned enterprises dominate all three. More to the point, these are about the only sectors of the economy to create large privately owned Chinese companies and from which state-owned behemoths are absent.

As Steve Dickinson of the China Law Blog points out, Baidu, Sina, and Alibaba are at risk of getting their wings clipped. To be fair, that is not the wording he uses. However, this Bystander sees it as a consequence of the significant implication he does note will result from the draft foreign investment law newly published by the commerce ministry: it will end a corporate governance structure known as the Variable Interest Entity (VIE).

All three companies and hundreds of others, particularly technology and telecoms firms, use VIEs to get round the investment regulatory rigidities of sectors of the economy the government deems strategically important and so proscribes or limits foreign investors.

The new draft revisions specifically set out to end VIEs. The revisions’ other main goals are:

  • to lessen the red tape for foreign direct investors wanting to own businesses in China;
  • to switch to a system of monitoring foreign investors via annual reports from pre-approvals for new foreign investments, save for in sectors of national significance; and
  • to put Chinese companies with foreign investors under the same legal regime as domestic companies.

China’s foreign investment law is outdated, so modernisation is to be welcomed — even if the draft law runs to a weighty 179 articles across eleven chapters.

VIEs are a loophole that has let foreigners operate businesses in the country through Chinese front companies. They are a corporate sleight of hand by which an investor controls a company through contractual legal agreements rather than through share ownership.

In short, VIEs say to authorities in country A ownership resides in country A while at the same time telling investors in country B that ownership resides in country B. This Bystander doesn’t need to be a lawyer to see that doesn’t pass many smell tests for good corporate governance.

There have been a number of VIE-related scandals, including involving Alibaba, Sina.com, and New Oriental Education, as VIEs open too many creases along which any or all of regulatory, ownership and operational risk can spread.

Nevertheless, VIEs have become widely used. At first, they were a way for inward foreign investors to enter parts of the Chinese market otherwise closed to them. Increasingly they have been used by privately-owned Chinese companies that list overseas, especially those from industries in which having any foreign shareholders is forbidden or restricted, such as tech and telecoms.

They circumnavigate regulatory rigidities: the constraints on Chinese firms raising capital domestically and the need for private firms to get permission to invest overseas, and restrictions on foreign investors and firms having ownership of Chinese enterprises in certain sectors of the Chinese economy. But given those restrictions on foreign investment exist, VIEs aid and abet in breaking the spirit of the law, if not its letter.

The straightforward solution would be to remove the regulatory rigidities. However, Beijing is not going to abandon keeping sectors of the economy ‘off-limits’ to foreign investors. Its new draft foreign investment regulations use where ‘effective control’ of a company resides to determine ownership.

At a stroke of the legal drafting pen, VIEs becomes irrelevant. Any business that authorities determine to be effectively foreign controlled will be breaking the law if it operates in a restricted or prohibited industry.

All of which would leave the likes of Baidu, Sina and Alibaba and all the other internet businesses that operate as VIEs in China, in a pickle. So, too, foreign investors who bought into the initial public offerings with such gusto and who could end up holding the paper of a company that is illegal.

Now, we don’t doubt that between drafting and final promulgation of a new foreign investment law, accommodations will be made to resolve any such discomforts. While the regulators appear to have rejected lobbing from the companies to, in effect, grandfather them into legality, the draft regulations would let a VIE that is controlled by Chinese to be considered a Chinese company. That determination would be made by authorities on a case by case basis. It would be incumbent on the VIE to show it should be exempted from being put out of business like every other VIE.

Beijing has to walk a fine line if it is not to discourage the development of those industries in which Baidu, Sina and Alibaba operate. All of them could play critical roles in encouraging domestic consumption and thus help meet the government’s goal of rebalancing the economy away from infrastructure investment- and export-led growth. On the other hand, it can’t be too blatant in showing that there is one rule for the powerful and well connected and another for all the rest.

Such companies could also switch their governance to a two-share-class model, and keep the relationship between investors and owners as effectively separated as they are with a VIE. (We don’t approve of companies having A and B shares as a matter of good governance, but that is a topic for another day.)

However, the cost of that will be greater government regulation over them and possibly the promotion of state-owned enterprises to rival them, though perversely it may also give the big, established players some protection from new entrants who won’t be allowed to go the VIE route or anything that looks like it (though opening the capital account would mitigate the need to).

There are several parts of the political establishment, from the security and propaganda arms to the state-owned enterprises themselves, who would welcome reining in the big private Internet groups. Abolishing VIE’s might be intended primarily to kill a lot of flies, but, intentionally or not, there are some endangered tigers, too.

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Jack Ma’s Open Sesame For The Wide World

IT IS EASY to overdo the symbolism in the fact that the biggest tech company listed on a U.S. exchange will soon be Chinese. Jack Ma’s e-commerce giant, Alibaba, is expected to to be valued at at least $163 billion after its forthcoming initial public offering on the New York Stock Exchange, eclipsing the $100 billion valuation Facebook achieved with its IPO.

If the share sale raises the expected $21.1 billion, and that would be a conservative sum given some of the hype that has preceded the newly filed prospectus, Alibaba’s would set an new high-water mark for a technology IPO, and be the third largest IPO from any sector. If pre-sale demand for its American Depositary Shares proves to be exceptionally strong, the offering might be repriced so that it topped the record $22.1 billion that Agricultural Bank of China raised in July 2010. Final pricing is expected during the week of Sept. 15th.

For now, the company’s business is China-centric, and is being touted to foreign investors as a way to tap China’s economic rebalancing with the expectation that e-commerce will take an increasingly larger slice of a growing pie of consumer consumption, though prospective investors should note that rivals such as Baidu, Tencent and JD have growing aspirations to loosen Alibaba’s grip on the wallets of the country’s growing middle class. But in a letter to investors, Ma made plain his global ambition. “In the past decade, we measured ourselves by how much we changed China. In the future, we will be judged by how much progress we bring to the world.” It is then that the symbolism will take on more substance.

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Jack Ma Takes A Shot At Football Club Ownership

Since time immemorial professional football clubs have been the playthings of successful businessmen. Alibaba’s Jack Ma, by taking a 50% take in Guangdong Evergrande for 1.2 billion yuan ($192 million), is following an ancient tradition.

Why is he doing it? He has shown no interest in the game previously.

There may be money to be made. Talk is of an eventual public flotation of the club, though in Europe listed football companies have not proved particularly successful for investors. Many have reverted to closely held ownership.

It may be that there is a branding play for Alibaba as it spreads its wings beyond e-commerce, Ma has couched his investment in the football club in terms of buying entertainment content. He would not be the first billionaire to see football as such. Rupert Murdoch was a pioneer in that regard. Evergrande’s success on the field since real estate tycoon Xu Jiayin  bought the club in 2010, makes it preeminent among China’s teams, a prerequisite for building a merchandising and media brand.

Alibaba has been on a spending spree ahead of its planned blockbuster listing in the U.S., splashing out some $6 billion on acquisitions to broaden its portfolio of businesses. Most have been Internet companies, but it is starting to make inroads into media and entertainment. Sport, though much changed by television, has not been significantly disrupted by technology. At least not yet. And it is not costing Ma much in the global scheme of things to try.

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Details Emerge Of China’s New Privately-Owned Banks

DETAILS ARE SEEPING out about the pilot programme announced in January to establish a handful of new private banks this year. These are intended as a first step towards providing competition to China’s giant state-owned banks and an alternative to the shadow banking system for small businesses in need of mainstream banking services.

Earlier this week, Caixin quoted a China Banking Regulatory Commission official outlining arrangements that paired some deep-pocketed investors, including internet company Alibaba, which operates China’s largest e-payment service, Alipay, with autoparts maker Wanxiang Group, and Tianjin Shanghui Investment with copper producer Huabei Group. Each of the five pairs, it seems, will focus on a specific customer segment and test a different banking business model. Initially, at least, the new banks being kept from going in direct competition with the big state banks’ existing businesses.

The Alibaba-Wanxiang partnership is intended to serve small and family businesses, which are likely to already by Alibaba customers, whereas the Shanghui-Huabei pairing would take only corporate clients. The Alibaba-Wanxiang bank will have caps on the size of the loans it can make and deposits it can take. Another pairing, social networking and online gaming company Tencent and Shenzhen-based Baiyeyuan Investment, will also have a cap on its loan size but will have a deposit minimum, not maximum.

What is not clear is the niche being carved out for the other two pairings, Shanghai investment companies JuneYao Group and Fosun Group, and Zhejiang’s electrical equipment maker Chint Group and industrial chemicals producer Huafon Group. Something in wealth management or personal finance seems likely for JuneYao-Fosun.

The five new private banks will be set up in Shanghai, Tianjin, Zhejiang and Guangdong. The banking regulator says they will start operating once they meet required standards, including forming a “living will” that will outline how the bank will shut down in an orderly manner in the event of a failure.

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