Law Commons^™

The Volcker Rule: A Brief Political History, Kimberly D. Krawiec, Guangya Liu

Faculty Scholarship

Today, more than five years after Dodd-Frank was first signed into law, uncertainty surrounds many aspects of the Volcker Rule’s application and ultimate impact on financial markets and bank stability. Many more years will likely pass before that uncertainty is resolved. We demonstrate through a quantitative and qualitative analysis that these difficulties were presaged by the Volcker Rule’s political history. The Volcker Rule -- originally rejected by Congressional lawmakers and economists within the Obama administration as unworkable -- arose as a political concession designed to quiet critics who contended that Dodd-Frank did not do enough to control risky bank activity. …

Götterdämmerung, Lawrence G. Baxter

Faculty Scholarship

In his panel remarks on the future direction of financial regulation after the 2012 elections, Professor Lawrence Baxter argues that the age of large banks and “too big to fail” is destined to come to an end, but not through the traditional avenue of governmental oversight. Baxter starts by detailing the warning signs that illuminate the unsustainable nature of the current financial model and moves to a discussion on the deficiencies of modern banking regulations. Some hope for an end to giant banking behemoths, Baxter finally posits, lies in stricter market discipline and a realization that smaller, less-complex banks provide …

Regulating Systemic Risk In Insurance, Daniel Schwarcz, Steven L. Schwarcz

Faculty Scholarship

As exemplified by the dramatic failure of AIG, insurance companies and their affiliates played a central role in the 2008 global financial crisis. It is therefore not surprising that the Dodd-Frank Act—the United States’ primary legislative re-sponse to the crisis—contained an entire title dedicated to insurance regulation, which has traditionally been the responsibility of individual states. The most important insurance-focused reforms in Dodd-Frank empower the Federal Reserve Bank to impose an additional layer of regulatory scrutiny on top of state insurance regulation for a small number of “systemically important” nonbank financial companies, such as AIG. This Article argues, however, that …

Strengthening Financial Reporting: An Essay On Expanding The Auditor’S Opinion Letter, James D. Cox

Faculty Scholarship

Users of financial statements, foremost of which are investors, have a voracious appetite for information that better enables them to assess the financial position and performance of the reporting firm. Even though financial statements purport to address their needs, because the statements, which are prepared by the firm’s managers, conceal a range of managerial estimates, assumptions, judgments, and choices, investors are deprived of the most fundamental kernel of information they seek, namely the overall quality of the financial reports themselves. In this Article, the author sets forth several modest steps that would enhance the overall quality of financial reporting by …

Internal Compliance Officers In Jeopardy?, Deborah A. Demott

Faculty Scholarship

No abstract provided.

The Crucial But (Potentially) Precarious Position Of The Chief Compliance Officer, Deborah A. Demott

Faculty Scholarship

This Article, written for a symposium on compliance issues in financial-services firms, focuses on the role of the chief compliance officer (“CCO”). Contrasting the position with that held by a firm’s general counsel or Chief Legal Officer (CLO), the article argues that a CCO’s position holds distinct challenges. Additionally, although internal compliance systems and personnel may be characterized as functional substitutes for external regulation, assessing the strengths and weaknesses of internal compliance requires a willingness to look deep within firms. The article argues that the law and regulation may enhance firms’ incentives to invest in effective internal compliance but may …

Don’T ‘Screw Joe The Plummer’: The Sausage-Making Of Financial Reform, Kimberly D. Krawiec

Faculty Scholarship

This Article examines agency-level activity during the preproposal rulemaking phase—a time period about which little is known despite its importance to policy outcomes—through an analysis of federal agency activity in connection with section 619 of the Dodd–Frank Act, popularly known as the Volcker Rule. By capitalizing on transparency efforts specific to Dodd–Frank, I am able to access information on agency contacts whose disclosure is not required by the Administrative Procedure Act and, therefore, not typically available to researchers.

I analyze the roughly 8,000 public comment letters received by the Financial Stability Oversight Council in advance of its study regarding Volcker …

Regulating Shadows: Financial Regulation And Responsibility Failure, Steven L. Schwarcz

Faculty Scholarship

In the modern financial architecture, financial services and products increasingly are provided outside of the traditional banking system—and thus without the need for bank intermediation between capital markets and the users of funds. Most corporate financing, for example, no longer is dependent on bank loans but raised through special-purpose entities, money-market mutual funds, securities lenders, hedge funds, and investment banks. This shift, referred to as “disintermediation” and described as creating a “shadow banking” system, is so radically transforming finance that regulatory scholars need to rethink their assumptions. Two of the fundamental market failures underlying shadow banking—information failure and agency failure—were …

The Emperor Has No Clothes: Confronting The Dc Circuit’S Usurpation Of Sec Rulemaking Authority, James D. Cox, Benjamin J.C. Baucom

Faculty Scholarship

In The Emperor Has No Clothes: Confronting the D.C. Circuit’s Usurpation of SEC Rulemaking Authority, Professor James D. Cox of Duke University School of Law & Benjamin J.C. Baucom, recent law clerk to Justice Don R. Willett of the Supreme Court of Texas, argue “that the level of review invoked by the D.C. Circuit in Business Roundtable and its earlier decisions is dramatically inconsistent with the standard enacted by Congress.” They conclude “that the D.C. Circuit has assumed for itself a role opposed to the one Congress prescribed for courts reviewing SEC rules.”

The 2011 Diane Sanger Memorial Lecture Protecting Investors In Securitization Transactions: Does Dodd–Frank Help, Or Hurt?, Steven L. Schwarcz

Faculty Scholarship

Securitization has been called into question because of its role in the recent financial crisis. Schwarcz examines the potential flaws in the securitization process and compare how the Dodd–Frank Act treats them. Although Dodd–Frank addresses one of the flaws, it underregulates or fails to regulate other flaws. It also overregulates by addressing aspects of securitization that are not flawed.

A Current Assessment Of Some Extraterritorial Impacts Of The Dodd-Frank Act With Special Focus On The Volcker Rule And Derivatives Regulation, Lawrence G. Baxter

Faculty Scholarship

As the world struggles to emerge from the Global Financial Crisis the vision of a harmonious framework of global financial regulation seems as distant as ever. Important progress made by international committees such as the Basel Committee on Banking Supervision and the Financial Stability Board notwithstanding, there seem to be increasing signs of unilateral, extraterritorial action by major jurisdictions, including the United States. This paper reviews the framework created by the US financial reforms, in particular anti money laundering provisions, the Volcker Rule and the proposed OTC derivatives margin requirements, and considers some of the dilemmas presented by modern global …

Fundamental Forces Driving United States And International Financial Regulations Reform, Lawrence G. Baxter

Faculty Scholarship

Multiple forces create a systemic crisis of the proportions of the Global Financial Crisis of 2008. Global and domestic financial reform is a difficult and perplexing task, one that is likely to take many years, and one that will surely continue to be shaped by a diverse range of forces. Recent measures remain incomplete and in some cases are even proving to be misdirected. This article considers seven fundamental forces shaping actions on future reform, specifically the (1) long term impact of the Crisis (and all financial crises); (2) increase in the “financialization” of the global economy, seemingly disproportionate to …

Regulating Shadow Banking, Steven L. Schwarcz

Faculty Scholarship

Inaugural Address for Boston University Review of Banking & Financial Law's Inaugural Symposium: “Shadow Banking” February 24, 2012.

Although shadow banking is said to be huge, estimated at over $60 trillion, it is not well defined. This short and accessible paper attempts to define shadow banking by identifying its overall scope and its basic characteristics. Based on the definition derived, the paper also conceptually examines how shadow banking can be regulated to try to maximize its efficiencies while minimizing its risks.

Keynote Address: A Regulatory Framework For Managing Systemic Risk, Steven L. Schwarcz

Faculty Scholarship

This accessible analysis of systemic risk regulation was delivered as the keynote speech at an October 20, 2011 European Central Bank conference on regulation of financial services. Many regulatory responses, like the Dodd-Frank Act in the United States, consist largely of politically motivated reactions to the financial crisis, looking for villains (whether or not they exist). To be most effective, however, the regulation must be situated within a more analytical framework. In this speech, I attempt to build that framework, showing that preventive regulation is insufficient and that regulation also must be designed to limit the transmission of systemic risk …

The Paradoxes Of Dodd-Frank, James D. Cox

Faculty Scholarship

No abstract provided.