Law Commons^™

Afterword: Why 'Taming The Megabanks' Should Remain A Top Priority For Financial Regulators And Policymakers, Arthur E. Wilmarth Jr.

GW Law Faculty Publications & Other Works

This essay was published as part of a law review symposium that evaluated my work on the regulation of large, complex financial institutions. Part I of my essay discusses the other articles published in the symposium issue and describes their relationship to my own work. Part II analyzes the global financial crisis that began in March 2020, following the outbreak and rapid spread of the COVID-19 virus. Part II also reviews the extraordinary actions taken by governments and central banks in response to that crisis. Part II argues that the pandemic- induced financial crisis and its aftermath confirm two lessons …

It's Time To Regulate Stablecoins As Deposits And Require Their Issuers To Be Fdic-Insured Banks, Arthur E. Wilmarth Jr.

GW Law Faculty Publications & Other Works

In November 2021, the President’s Working Group on Financial Markets (PWG) issued a report analyzing the rapid expansion and growing risks of the stablecoin market. PWG’s report determined that stablecoins pose a wide range of potential hazards, including the risks of inflicting large losses on investors, destabilizing financial markets and the payments system, supporting money laundering, tax evasion, and other forms of illicit finance, and promoting dangerous concentrations of economic and financial power. PWG called on Congress to pass legislation that would require all issuers of stablecoins to be banks that are insured by the Federal Deposit Insurance Corporation (FDIC). …

The Pandemic Crisis Shows That The World Remains Trapped In A 'Global Doom Loop' Of Financial Instability, Rising Debt Levels, And Escalating Bailouts, Arthur E. Wilmarth Jr.

GW Law Faculty Publications & Other Works

In January 2020, I completed a book (Taming the Megabanks: Why We Need a New Glass- Steagall Act) analyzing the financial crises that precipitated the Great Depression of the 1930s and the recent Great Recession. My book argued that the world’s financial system was caught in a “global doom loop” at the beginning of 2020. Bailouts and economic stimulus programs during and after the global financial crisis of 2007-09 (GFC) had imposed heavy debt burdens on most governments, and leading central banks were carrying bloated balance sheets. The rescues arranged by governments and central banks during the GFC created a …

Taming The Megabanks: Why We Need A New Glass-Steagall Act, Arthur E. Wilmarth Jr.

GW Law Faculty Publications & Other Works

This blog post was published in The FinReg Blog (hosted by Duke’s Global Financial Markets Center) on September 24, 2020. It provides an overview of my book of the same title, published by Oxford University Press on October 2, 2020.

A Return To Old-Time Religion? The Glass-Steagall Act, The Volcker Rule, Limits On Proprietary Trading, And Sustainability, Douglas M. Branson

Articles

Pursuant to directions contained in the Dodd-Frank Act (2010), five federal agencies collaborated to produce a 983 page rule limiting proprietary trading by financial institutions (the Volcker Rule, which becomes effective in summer, 2015). The Volcker Rule limits proprietary trading to no more than 3 percent of “Tier One” assets. The hoped for effects are that financial institutions will be strictly limited in trading for their own accounts. Some say, propelled by unbridled greed, U.S. financial institutions borrowed excessive amounts of money, inflating leverage ratios as high as 36 or 40 to 1, using the borrowed funds to engage in …

Narrow Banking As A Structural Remedy For The Problem Of Systemic Risk: A Comment On Professor Schwarcz's Ring-Fencing, Arthur E. Wilmarth Jr.

GW Law Faculty Publications & Other Works

In a recent article, Professor Steven Schwarcz describes the concept of "ring-fencing" as a "potential regulatory solution to problems in banking, finance, public utilities, and insurance." Ring-fencing has gained particular prominence in recent years as a strategy for limiting the systemic risk of large financial conglomerates (also known as "universal banks"). Professor Schwarcz’s article describes several ring-fencing plans that have been adopted or proposed in the United States, the United Kingdom, and the European Union.

This Comment argues that "narrow banking" is a highly promising ring-fencing remedy for the risks created by universal banks. As the Comment explains, narrow banking …

The Volcker Rule And Evolving Financial Markets, Charles K. Whitehead

Cornell Law Faculty Publications

The Volcker Rule prohibits proprietary trading by banking entities - in effect, reintroducing to the financial markets a substantial portion of the Glass-Steagall Act’s static divide between banks and securities firms. This Article argues that the Glass-Steagall model is a fixture of the past - a financial Maginot Line within an evolving financial system. To be effective, new financial regulation must reflect new relationships in the marketplace. For the Volcker Rule, those relationships include a growing reliance by banks on new market participants to conduct traditional banking functions.

Proprietary trading has moved to less-regulated businesses, in many cases, to hedge …

Accountants Make Miserable Policemen: Rethinking The Federal Securities Laws, Jerry W. Markham

Faculty Publications

This Article describes the background of the federal securities laws and the assumptions about full disclosure that where made to justify the intrusive legislation. It also considers the problems encountered by the SEC in the nearly seven decades that have passed since the Stock Market Crash of 1929 and then reviews the market meltdown over the last three years and describes how full disclosure regulation failed. Finally, the author focuses on a principal flaw in the system – the misguided effort to turn accountants into policeman.

Financial Modernization: The Effect Of The Repeal Of The Glass-Steagall Act On Consumers And Communities, Richard D. Marsico

Articles & Chapters

No abstract provided.

Laws Governing Bank Securities Activities In The United States, Hanning Zhang

LLM Theses and Essays

This thesis analyzes the previous regulatory approach to bank investment activities in the United States and its effects on the banking industry, discusses regulatory changes that expanded banking powers, reviews the new legislation and potential problems in the current movement of financial reform, and suggests some solutions. Chapter II reviews previous statutory regimes on bank securities activities, including those separating traditional and investment banking under the Glass-Steagall Act and Bank Holding Company Act. The regulatory regime under the E.U. banking system is addressed to give an example of successful deregulation, by which universal banks may fully enjoy the rapid changing …

Banking Regulation: Its History And Future, Jerry W. Markham

Faculty Publications

This article traces the history of the growth and regulation of banking services in the United States. That history will show how the existing regulatory structure was developed in response to demands of the Civil War and a populist crusade against the “money trust.” That effort reached its zenith with the New Deal legislation of the 1930s, but began to fall apart as financial services consolidated. The article will then show how the financial services industries (banking, insurance, securities and derivatives) began to merge in their product base while at the same time separating on a fault line between institutional …

Analysis Of The U.S. Regulations Of Derivatives: Does The Use Of Such Complicated Instruments Pose A Serious Threat To The Safety And Soundness Of The U.S. Banking System?, Erwin De Deyn

LLM Theses and Essays

In the last fifteen years, the globalization of financial markets and institutions along with innovative investment strategies have caused an irreversible revolution in the world’s financial markets. Investors and managers can now use new instruments, such as derivatives, for guarding against financial risks. Derivatives are financial instruments whose returns are derived from other assets or variables, like futures and options. The growth of derivative markets has accelerated rapidly in the last ten years, which has caused financial markets in the United States and throughout the world to be more efficient, which contributes to economic welfare. However, the dramatic growth in …