Law Commons^™

Trusts No More: Rethinking The Regulation Of Retirement Savings In The United States, Natalya Shnitser

Boston College Law School Faculty Papers

The regulation of private and public pension plans in the United States begins with the premise that employer-sponsored plans resemble traditional donative, or gift, trusts. Accordingly, the Employee Retirement Income Security Act of 1974 (ERISA) famously “imports” major principles of donative trust law for the regulation of private employer-sponsored pension plans. Statutes regulating state and local government pension plans likewise routinely invoke the structure and standards applicable to donative trusts. Judges, in turn, adjudicate by analogy to the common law trust.

This Article identifies the flaws in the analogy and analyzes the shortcomings of a regulatory framework that, despite dramatic ...

21st Century Investment Agreements: Justice, Governance And The Rule Of Law, Frank J. Garcia

Boston College Law School Faculty Papers

Investment treaty law can no longer be managed as if it were merely a system of private ordering setting out the protected rights of capital owners. This philosophy has contributed to the ongoing legitimacy crisis affecting investment law today, including the TPP and TTIP negotiations. In response to a similar legitimacy crisis in the 1990s, the international trade system began a profound paradigm shift, recognizing that trade law was not simply a technical regime for liberalizing economic flows, but a system of treaty-based governance for managing transnational economic resources for the good of society as a whole.

Investment law has ...

Countercyclical Regulation And Its Challenges, Patricia A. Mccoy

Boston College Law School Faculty Papers

Historically, U.S. financial regulation has normally been procyclical, with federal regulators and Congress relaxing oversight during bull markets and cracking down once financial crises hit. After 2008, the wisdom of this approach came under attack. Critics argued that procyclical regulation left financial institutions undercapitalized and unable to withstand panics. Other critics asserted that economic downturns could be mitigated and even averted if regulators took steps to puncture asset bubbles. The concept of countercyclical regulation responds to both of these critiques. This new approach posits that financial regulation would be more effective if financial regulation clamped down during financial expansions ...

Representations And Warranties: Why They Did Not Stop The Crisis, Patricia A. Mccoy, Susan Wachter

Boston College Law School Faculty Papers

During the run-up to the 2008 financial crisis, representations and warranties (contractual statements enforceable through legal action) may have given investors false assurance that mortgage loans were being properly underwritten. This assurance in turn may have contributed to overinvestment in mortgage-backed securities in two ways. First, the assumption that legally enforceable penalties associated with reps and warranties would deter lax underwriting may have led to less monitoring of these contracts than would otherwise have occurred. In turn, the lack of monitoring of actual underwriting practices enabled the spread of lax lending practices. The existence of these reps and warranties and ...

A New Coalescence In The Housing Finance Reform Debate?, Patricia A. Mccoy, Susan Wachter

Boston College Law School Faculty Papers

This policy brief examines recent proposals for reform of the housing finance system.

Systemic Risk Oversight And The Shifting Balance Of State And Federal Authority Over Insurance, Patricia A. Mccoy

Boston College Law School Faculty Papers

The state-based model of U.S. insurance regulation has been remarkably enduring to date, in part because the traditional rationales for a greater federal role – efficiency, uniformity, and consumer protection – have not succeeded in displacing it. However, the 2008 financial crisis, the federal government’s unprecedented bailouts of parts of the insurance sector, and the need for a coordinated international approach radically shifted the debate about the proper allocation of power between the federal government and the states by supplanting traditional concerns about efficiency, uniformity, and consumer protection in insurance with a new federal mission to control systemic risk. Unprepared ...

What Loss Mitigation Taught Us About Housing Finance Reform, Patricia A. Mccoy

Boston College Law School Faculty Papers

This blog post describes the implications of the recent US loss mitigation experience for housing reform.

Degrees Of Intermediation, Patricia A. Mccoy

Boston College Law School Faculty Papers

No abstract provided.

Funding Discipline For U.S. Public Pension Plans: An Empirical Analysis Of Institutional Design, Natalya Shnitser

Boston College Law School Faculty Papers

Using newly collected data on over 100 state-administered pension plans, this Article shows that previously overlooked differences in institutional design are associated with the striking variation in funding discipline across U.S. public pension plans. As state and local governments grapple with unfunded pension obligations, this Article presents a timely examination of public plan governance across two key dimensions: the allocation of control over funding decisions and the transparency with respect to funding liabilities. It shows empirically that greater constraints on legislative control over funding decisions—typically through the delegation of control to pension-system boards—have been associated with better ...

Unfit For Duty: The Officer And Director Bar As A Remedy For Fraud, Renee M. Jones

Boston College Law School Faculty Papers

Many commentators have questioned the efficacy of the SEC’s enforcement program in the aftermath of the 2008 financial crisis. Some criticize the agency for allowing corporate defendants to settle charges without admitting or denying liability. Others dispute the impact of astronomical fines levied against too-big-to-fail financial institutions. Still others urge prosecutors to bring criminal charges against those who led the failed financial firms to ruin. This Article, written for a symposium on SEC enforcement, focuses attention on an underutilized weapon in the SEC’s arsenal: the power to bar officers and directors of public companies from future service in ...

The New Human Equity Transactions, Shu-Yi Oei, Diane M. Ring

Boston College Law School Faculty Papers

This article begins to explore the legal and policy implications of a new form of financing -- income sharing agreements -- which have raised concerns that the effectively created "equity" in humans.

The Home Mortgage Foreclosure Crisis: Lessons Learned, Patricia A. Mccoy

Boston College Law School Faculty Papers

From 2007 through 2011, the United States housing market suffered a severe imbalance in supply and demand due to an excessive number both of foreclosed homes and homes awaiting foreclosure in the shadow housing inventory. Foreclosure prevention can help reduce the shadow housing inventory by keeping troubled mortgages from entering that inventory to begin with. The loan modification experience post-2008 yielded four main lessons about the best way to optimize foreclosure prevention. First, servicers should design loan modifications to lower monthly payments, including through principal reduction whenever appropriate. Second, servicers should evaluate loss mitigation as soon as possible following delinquency ...

Keeping Tabs On Financial Innovation: Product Identifiers In Consumer Financial Regulation, Patricia A. Mccoy, Daniel Carpenter

Boston College Law School Faculty Papers

The financial crisis of 2008 gave rise to renewed discussion about whether financial innovations should undergo higher scrutiny for potential harm and, if so, what type? In this Article, the authors propose a new system for monitoring financial innovations through a system of registration, data collection and analysis using unique product identifiers. Creating product identifiers would increase monitoring abilities substantially at relatively low cost by facilitating the linkage of separate databases. The assignment of unique product identifiers would also minimize errors in the identification and classification of different financial products. These identifiers would be available to both the government and ...

Barriers To Foreclosure Prevention During The Financial Crisis, Patricia A. Mccoy

Boston College Law School Faculty Papers

The number of modifications to distressed residential loans following the 2008 financial crisis has been disappointingly low compared to the number of foreclosures. This raises concerns about the presence of artificial barriers to loan modifications in situations where foreclosure should be avoidable. There are three pressing reasons to care about what the real barriers to foreclosure prevention are. First, foreclosures that could have been avoided inflict enormous, needless losses on borrowers, investors, and society at large. Second, overcoming artificial barriers to foreclosure prevention will result in loan modifications with higher rates of success. Finally, knowing what to fix is necessary ...

Putting Your Money Where Your Mouth Is: The Performance Of Earnouts In Corporate Acquisitions, Brian J.M. Quinn

Boston College Law School Faculty Papers

This Article extends the existing literature on contingent earnout provisions in merger agreements by examining the actual performance of these provisions and drawing conclusions about their adequacy as contractual responses to asymmetric information. Recently available data suggests that actual target company performance post-closing often falls short of the expectations of both buyers and sellers – even when those expectations have been discounted for risk. The consistent failure of sellers to meet earnout targets of all types and the declining values of contingent earnout payment suggests that the earnout provision may not be an adequate response to the dual problems of adverse ...

A World Of Choices, David A. Wirth

Boston College Law School Faculty Papers

In this keynote address, David Wirth identifies fundamental and dynamic attributes of globalisation, examines the need to confront institutional failures and systemic challenges of multilateral governance, and offers some preliminary observations on directions in which global governance might evolve to achieve salutary outcomes that are good for all.

The False Promise Of Risk-Reducing Incentive Pay: Evidence From Executive Pensions And Deferred Compensation, Kelli A. Alces, Brian D. Galle

Boston College Law School Faculty Papers

The average publicly-traded firm pays its CEO millions of dollars in deferred compensation and defined-benefit pension commitments. Scholars debate whether firms use these payments to efficiently align managerial interests with those of creditors, or whether instead they represent “hidden” forms of rent extraction. Yet others recommend these forms of debt-like incentive compensation, sometimes called “inside debt,” as a way of controlling risk-taking in systemically important financial institutions.

We argue instead that inside debt is unlikely to be efficient in either setting. Inside debt is costlier and more complex than other tools for managing risk, such as covenants or simply cutting ...

The Consumer Financial Protection Bureau: Financial Regulation For The 21st Century, Patricia A. Mccoy, Leonard Kennedy, Ethan Bernstein

Boston College Law School Faculty Papers

After existing regulatory systems failed to prevent the recent financial crisis, Congress passed the Dodd-Frank Wall Street Reform and Consumer Protection Act, a sweeping reform designed to alleviate the crisis and prevent its recurrence. Out of this Act, the Consumer Financial Protection Bureau was born. This new agency is charged with making markets for consumer financial products and services work for Americans, a task that was previously spread out among seven different federal agencies with varying priorities. This Article describes, with a series of concrete case studies, four key principles that have guided the Bureau as it strives to fulfill ...

Defining Our Terms Carefully And In Context: Thoughts On Reading (And In One Case, Rereading) Three Books, Cynthia C. Lichtenstein

Boston College Law School Faculty Papers

In preparing to write this paper, I read again Walter Bagehot’s Lombard Street: A Description of the Money Market , Perry Mehrling’s The New Lombard Street: How the Fed Became the Dealer of Last Resort and John Authers’ The Fearful Rise of Markets: Global Bubbles, Synchronized Meltdowns, and How to Prevent Them in the Future. . Bagehot, of course, was the Governor of the Bank of England when he wrote what Mehrling calls his “magisterial” treatise in 1873 on how a central bank must react to a financial crisis. Mehrling is an economist and an economic historian. Authers is a ...

Federal Preemption And Consumer Financial Protection: Past And Future, Patricia A. Mccoy, Kathleen C. Engel

Boston College Law School Faculty Papers

Starting in 1995 and throughout the subprime boom during the next decade, Congress failed to take action to curb predatory mortgage lending. Many states and cities filled the void by passing anti-predatory lending laws of their own. Lenders, worried about potential liability, quickly organized a full-scale attack on the state and local initiatives. Their most potent strategy lay in challenging the laws and ordinances under federal preemption rules for national banks and federal savings associations that precluded states from enforcing their anti-predatory lending laws.

The Dodd-Frank Act curtailed the preemption rules by establishing that state consumer financial laws can only ...

Public Engagement In Rulemaking: The Consumer Financial Protection Bureau’S New Approach, Patricia A. Mccoy

Boston College Law School Faculty Papers

No abstract provided.

Who Is Making International Tax Policy? International Organizations As Power Players In A High Stakes World, Diane M. Ring

Boston College Law School Faculty Papers

Who makes international tax policy in today’s world? Certainly no single body possesses that power - there is no global tax authority, and states are not capable of achieving all of their international tax policy goals on a unilateral basis. The development of international tax policy is an interactive and dynamic process that involves a wide range of players, most of whom can be characterized as international organizations. Their roles, goals, tools and influence vary by organization and by issue, but their net impact on tax policy is undeniable. If we are to better understand how tax policy is formed ...

Back To Basics: Why Financial Regulatory Overhaul Is Overrated, Renee M. Jones

Boston College Law School Faculty Papers

No abstract provided.

Securitization And Systemic Risk Amid Deregulation And Regulatory Failure, Patricia A. Mccoy, Andrey D. Pavlov, Susan M. Wachter

Boston College Law School Faculty Papers

During the recent housing boom, private-label securitization without regulation was unsustainable. Without regulation, securitization allowed mortgage industry actors to gain fees and to put off risks. The ability to pass off risk allowed lenders and securitizers to compete for market share by lowering their lending standards, which activated more borrowing. Lenders who did not join in the easing of lending standards were crowded out of the market. Meanwhile, the mortgages underlying securities became more exposed to growing default risk, but investors did not receive higher rates of return. Artificially low risk premia caused the asset price of houses to go ...

The Failure Of Private Ordering And The Financial Crisis Of 2008, Brian J.M. Quinn

Boston College Law School Faculty Papers

This Article analyzes the Financial Crisis of 2008 in the context of failures by market participants to engage in private ordering thus leading to opportunistic behavior at the expense of market stability. The Financial Crisis of 2008 offers a decidedly negative verdict on a decades-long project to deregulate financial markets and rely on private ordering mechanisms, including securitization and default swaps, to mitigate opportunistic behavior and improve market efficiency. Although the regulatory approach of the past two decades, which relied in great measure on private parties fending for themselves, helped to generate a number of innovations and positive developments in ...

A New Role For The International Monetary Fund In A New World Economic Order, Cynthia C. Lichtenstein

Boston College Law School Faculty Papers

The IMF must change to deal with its new functions in a changed world of interconnected global financial markets. The piece first describes the Fund's mandated process of internal reform as of the time the paper was given (2007). It then summarizes the recommendations of Mervyn Kind, Governor of the Bank of England (in a talk he gave in India) as to how the Fund should change its oversight of the functioning of the international monetary system.

Justice, The Bretton Woods Institutions And The Problem Of Inequality, Frank J. Garcia

Boston College Law School Faculty Papers

The Bretton Woods Institutions are, together with the WTO, the preeminent international institutions devoted to managing international economic relations. This mandate puts them squarely in the center of the debate concerning development, inequality and global justice. While the normative analysis of the WTO is gaining momentum, the systematic normative evaluation of the World Bank and the International Monetary Fund is comparatively less developed. This essay aims to contribute to that nascent inquiry. How might global justice criteria apply to the ideology and operations of the Bank and Fund? Political theory offers an abundance of perspectives from which to conduct such ...

The Impact Of Predatory Lending Laws: Policy Implications And Insights, Patricia A. Mccoy, Raphael Bostic, Kathleen C. Engel, Anthony Pennington-Cross, Susan Wachter

Boston College Law School Faculty Papers

Over half the states and several localities have enacted statutes and ordinances to regulate abuses in the residential mortgage market. The effect of these statutes is a matter of debate. This paper seeks to improve the understanding of this increasingly important issue and pays particular attention to the role that legal enforcement mechanisms play in this context.

We created a legal index of laws governing mortgage lending terms and practices, giving each state an overall score for the strength of its laws. In addition, we disaggregated the index to create sub-indices along three dimensions: (1) the scope of loans covered ...

Unification Of Payments Law And The Problem Of Insolvency Risk In Payment Systems, James S. Rogers

Boston College Law School Faculty Papers

No abstract provided.

Turning A Blind Eye: Wall Street Finance Of Predatory Lending, Kathleen C. Engel, Patricia A. Mccoy

Boston College Law School Faculty Papers

Today, Wall Street finances up to eighty percent of subprime home loans through securitization. The subprime sector, which is designed for borrowers with blemished credit, has been dogged by predatory lending charges, many of which have been substantiated. As subprime securitization has grown, so have charges that securitization turns a blind eye to financing abusive loans. In this paper, we examine why secondary market discipline has failed to halt the securitization of predatory loans.

When investors buy securities backed by predatory loans, they face a classic lemons problem in the form of credit risk, prepayment risk, and litigation risk. Securitization ...