Banking and Finance Law Commons^™

Private Fund Adviser Registration Act Hr-3818, Anita Krug

All Faculty Scholarship

This paper comments on the Obama administration's 2009 proposal for the regulation of hedge fund investment advisers.

Regulate Otc Derivatives By Deregulating Them, Lynn A. Stout

Cornell Law Faculty Publications

When credit markets froze up in the fall of 2008, many economists pronounced the crisis inexplicable and unforeseeable. Lawyers who specialize in financial regulation, and especially the small cadre who specialize in derivatives regulation, knew better.That's because the roots of the catastrophe lay not in changes in the markets, but changes in the law. In particular, the credit crisis can be traced to Congress's 2000 passage of the Commodity Futures Modernization Act, which radically altered the traditional legal approach to financial derivatives.

This shift in the legal treatment of financial derivatives has brought the banking system to its knees. The …

Disquiet On The Home Front: Disturbing Crises In The Nation's Markets And Institutions, Shelby D. Green

Pace Law Review

No abstract provided.

Financial Regulatory Reform And Private Funds, Anita Krug

All Faculty Scholarship

This white paper comments on the Obama administration's June 2009 proposal for the regulation of hedge fund investment advisers.

The Quiet Metamorphosis: How Derivatives Changed The "Business Of Banking", Saule T. Omarova

Cornell Law Faculty Publications

In the wake of an unprecedented global financial crisis, one of the fundamental questions preoccupying policymakers and students of financial regulation worldwide is "How did we get here?" This Article uncovers and analyzes an important part of our recent regulatory history, which provides a key to understanding some of the deeper, hidden causes of the crisis but whose significance legal scholars have so far failed to appreciate.

The Article examines interpretive letters issued by the Office of the Comptroller of the Currency (OCC), the primary regulator of federally chartered U.S. banks, interpreting the National Bank Act of 1863 to allow …

Cuarto Congreso Nacional De Organismos Públicos Autónomos, Bruno L. Costantini García

Bruno L. Costantini García

Memorias del Cuarto Congreso Nacional de Organismos Públicos Autónomos

"El papel de los Organismos Públicos Autónomos en la Consolidación de la Democracia"

Securitization And Systemic Risk Amid Deregulation And Regulatory Failure

Patricia A. McCoy

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 …

Do Individual Investors Affect Share Price Accuracy? Some Preliminary Evidence, Alicia Davis Evans

Law & Economics Working Papers Archive: 2003-2009

A common belief is that individual investors are noise traders that distort stock prices. Because accurate share prices are important for economic functioning, the market effect of retail investors has significant regulatory implications. This paper, employing a new NYSE retail trading data set and the R2 metric of share price informedness, contributes to the debate by demonstrating that as the proportion of trading by individual investors increases, the R2 of firms decreases. Adherents of the R2 methodology hold that lower R2's imply more accurate stock prices. The results of an instrumental variable estimation suggest that this relationship is a causal …

The Regulatory Response To Madoff, Anita Krug

All Faculty Scholarship

This white paper evaluates investor protection mechanisms in the securities regulatory regime at the time the Madoff fraud was exposed. It considers whether the post-Madoff call for additional regulation of hedge funds and/or their managers - and/or their respective activities - was warranted.

The Hedge Fund Transparency Act Of 2009, Anita Krug

All Faculty Scholarship

This white paper provides a review and critique of a bill introduced by Senators Charles Grassley (R-Iowa) and Carl Levin (D-Mich.) in the Senate in early 2009 that, if enacted, would have imposed certain registration and disclosure requirements on hedge funds and certain other private funds.

The Future Of The Securities And Exchange Commission As A Market Regulator, Roberta S. Karmel

Faculty Scholarship

No abstract provided.

Deterring "Double-Play" Manipulation In Financial Crisis: Increasing Transaction Cost As A Regulatory Tool, Lin (Lynn) Bai, Rujing Meng

Faculty Articles and Other Publications

The sub-prime mortgage crisis that originated in the United States has triggered a global credit crunch, threatening the solvency of emerging markets that have relied heavily on foreign debt, and resulting in the devaluation of their currencies. Currency market interventions by the central banks in countries with a currency board system lead to higher short-term interest rates and further declinations in the local stock market. This economic setting invites the double-play manipulation strategy that simultaneously attacks both the local currency and the stock market. History has shown that a central bank’s stock market intervention is costly and that sustaining the …

Securities Law Research Guide, Adeen Postar

Way2Search! Topical Instruction Series

No abstract provided.

Securities And Commerical Law Research, Adeen Postar

Way2Search! Topical Instruction Series

No abstract provided.

“Reforma Do Direito Das Sociedades Comerciais Em Espanha” [Company Law Reform In Spain], Bruno Ferreira

Bruno Ferreira

No abstract provided.

“Tendências Recentes Em Torno Do Direito De Preferência Em Aumentos De Capital” [Recent Tendencies Regarding Rights Of First Refusal In Rights Issues], Bruno Ferreira

Bruno Ferreira

No abstract provided.

Breve Recensão: "Il Nuovo Diritto Societario" [Book Review: "New Italian Company Law"], Bruno Ferreira

Bruno Ferreira

No abstract provided.

“Os Deveres De Cuidado Dos Administradores E Gerentes (Análise Dos Deveres De Cuidado Em Portugal E Nos Estados Unidos Da América Fora Das Situações De Disputa Sobre Ocontrolo Societário)” [The Duties Of Care Of Board Members And Managers (An Analysis Of The Duties Of Care In Portugal And In The United States Of America Outside Of Control Dispute Situations)], Bruno Ferreira

Bruno Ferreira

No abstract provided.

'Collective Action Clauses: Sovereign Bondholders Cornered?', Joy Dey

Joy Dey

A default in its debt obligations compels a sovereign borrower to adopt drastic measures in order to contain a spiralling financial crisis. One of such steps is to restructure a debt which is in default. Every sovereign debt restructuring results in considerable loss to the claims of the bondholders, therefore, equitable measures must be adopted during debt restructuring to ensure that sovereigns do not misuse the restructuring process to their advantage, otherwise termed ‘debtor moral hazard’. However, recent spate of restructurings, especially by Latin American countries, like Argentina, Brazil, Mexico and Uruguay, have seen ingenious use of collective action clauses …

The Unaccountability Of The Accounting Regulators: Analyzing The Constitutionality Of The Public Company Accounting Oversight Board, 42 J. Marshall L. Rev. 1019 (2009), Whitney Innes

UIC Law Review

No abstract provided.

The Coroner’S Inquest: Ecuador’S Default And Sovereign Bond Documentation, Mitu Gulati, Lee C. Buchheit

Faculty Scholarship

Conventional wisdom is that sovereigns will rarely, if ever, default on their external debts in circumstances where it is clear that they have the capacity to pay. The first line of defense against the errant sovereign is its concern about reputation. It may have to tap the external debt markets again in the future; and there is the fear that the markets will extract revenge. But reputational constraints do not always work because some governments heavily discount future costs in favor of current benefits. When reputational constraints fail, however, a second line of defense is supposed to come into play. …

The ‘Principles’ Paradox, Steven L. Schwarcz

Faculty Scholarship

This essay, prepared for a University of Cambridge conference on ‘Principles Versus Rules in Financial Regulation’, posits a new issue in that debate. Although principles-based regulation is thought to more closely achieve normative goals than rules, the extent to which that occurs can depend on the enforcement regime. A person who is subject to unpredictable liability is likely to hew to the most conservative interpretation of the principle, especially where that person would be a potential deep pocket in litigation. This creates a paradox: unless protected by a regime enabling one in good faith to exercise judgment without fear of …

Keynote Address: The Case For A Market Liquidity Provider Of Last Resort, Steven L. Schwarcz

Faculty Scholarship

This short paper, prepared as a keynote address, explains why the credit crunch is fundamentally a story about financial markets, not banks. Its cause was a collapse of securitization and other debt markets, which have become major sources of financing for consumers and companies. Deprived of this financing, consumers have had difficulty purchasing homes and automobiles, and companies have had difficulty purchasing inventory and making capital investments, causing the real economy to shrink. This paper examines how these financial markets should be protected. Although already subject to many prescriptive regulatory protections, these markets evolve faster than regulation can adapt. The …

The Future Of Securitization, Steven L. Schwarcz

Faculty Scholarship

Securitization, a process in which firms can raise low-cost financing by efficiently allocating asset risks with investor appetite for risk, has been one of the most dominant and fastest-growing means of capital formation in the United States and the world. The subprime financial crisis, however, has revealed certain defects with how securitization is sometimes utilized. This article examines these defects and the extent they can, and should, be remedied going forward.

Keynote Address: Understanding The ‘Subprime’ Financial Crisis, Steven L. Schwarcz

Faculty Scholarship

No abstract provided.

Regulating Complexity In Financial Markets, Steven L. Schwarcz

Faculty Scholarship

As the financial crisis has tragically illustrated, the complexities of modern financial markets and investment securities can trigger systemic market failures. Addressing these complexities, this Article maintains, is perhaps the greatest financial-market challenge of the future. The Article first examines and explains the nature of these complexities. It then analyzes the regulatory and other steps that should be considered to reduce the potential for failure. Because complex financial markets resemble complex engineering systems, and failures in those markets have characteristics of failures in those systems, the Article‟s analysis draws on chaos theory and other approaches used to analyze complex engineering …

How Deregulating Derivatives Led To Disaster, And Why Re-Regulating Them Can Prevent Another, Lynn A. Stout

Cornell Law Faculty Publications

When credit markets froze up in the fall of 2008, many economists pronounced the crisis both inexplicable and unforeseeable. That’s because they were economists, not lawyers.

Lawyers who specialize in financial regulation, and especially the small cadre who specialize in derivatives regulation, understood what went wrong. (Some even predicted it.) That’s because the roots of the catastrophe lay not in changes in the markets, but changes in the law. Perhaps the most important of those changes was the U.S. Congress’s decision to deregulate financial derivatives with the Commodity Futures Modernization Act (CFMA) of 2000.

Prior to 2000, off-exchange derivatives contracts …

Leverage In The Board Room: The Unsung Influence Of Private Lenders In Corporate Governance, Frederick Tung

Faculty Scholarship

The influence of banks and other private lenders pervades public companies. From the first day of a lending arrangement, loan covenants and built-in contingency provisions affect managerial decision making. Conventional corporate governance analysis has been slow to notice or account for this lender influence. Corporate governance discourse has traditionally focused only on corporate law arrangements. The few existing accounts of creditors' influence over firm managers emphasize the drastic actions creditors take in extreme cases - when a firm is in serious trouble - but in fact, private lender influence is a routine feature of corporate governance even absent financial distress. …

Deeply Persistently Conflicted: Credit Rating Agencies In The Current Regulatory Environment, Timothy E. Lynch

Faculty Works

Credit rating agencies have a pervasive and potentially devastating influence on the financial well-being of the public. Yet, despite the recent passage of the Credit Rating Agency Reform Act, credit rating agencies enjoy a relative lack of regulatory oversight. One explanation for this lack of oversight has been the appeal of a self-regulating approach to credit rating agencies that claim to rely deeply on their reputational standing within the financial world. There are strong arguments for doubting this approach, including the conflicting self-interest of credit rating agencies whose profits are gained or lost depending on their ability to lure the …

Teamsters Local 445 Freight Division Pension Fund V. Dynex Capital Inc., Erica E. Bonnett

NYLS Law Review

No abstract provided.