Law Commons^™

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.

Controlling Financial Chaos: The Power And Limits Of Law, Steven L. Schwarcz

Faculty Scholarship

This Essay examines how law can help to control financial chaos. To that end, regulation should strive to not only maximize economic efficiency within the financial system but also protect the financial system itself. Any regulatory framework for achieving these goals, however, will be imperfect and have tradeoffs. Increasing financial complexity has created information failures that even disclosure cannot remedy, whereas law-imposed standardization would have its own flaws. Bounded human rationality limits the effectiveness of even otherwise ideal laws. Furthermore, the increasing dispersion of financial risk is undermining monitoring incentives. We also do not yet fully understand how systemic risk …

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 …

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.”

Marginalizing Risk, Steven L. Schwarcz

Faculty Scholarship

A major focus of finance is reducing risk on investments, a goal commonly achieved by dispersing the risk among numerous investors. Sometimes, however, risk dispersion can cause investors to underestimate and under-protect against risk. Risk can even be so widely dispersed that rational investors individually lack the incentive to monitor it. This Article examines the market failures resulting from risk dispersion and analyzes when government regulation may be necessary or appropriate to limit these market failures. The Article also examines how such regulation should be designed,including the extent to which it should limit risk dispersion in the first instance.

What Is Securitization? And For What Purpose?, Steven L. Schwarcz

Faculty Scholarship

In Re: Defining Securitization, Professor Jonathan Lipson attempts to define a “true” securitization transaction, ultimately characterizing it as “a purchase of primary payment rights by a special purpose entity that (1) legally isolates such payment rights from a bankruptcy (or similar insolvency) estate of the originator, and (2) results, directly or indirectly, in the issuance of securities whose value is determined by the payment rights so purchased.” There is much to admire in Lipson’s attempt but also much to question.

Let me start with the admiration. Lipson’s article is by far the most systematic and thoughtful analysis of what …