Law Commons^™

Bank Governance And Systemic Stability: The "Golden Share" Approach, Saule T. Omarova

Cornell Law Faculty Publications

The global financial crisis of 2008-2009 has sharply reframed the debate on the role of bank corporate governance as a mechanism of systemic crisis prevention. Among other things, it revealed how often the incentives of bank managers and shareholders to maximize short-term private gains are perfectly aligned as a matter of internal governance, but work directly against the broader public interest in preserving long-term financial stability. This Article accepts the existence of that built-in potential conflict as the critical starting point for answering the central question of post-crisis bank governance: How do we ensure that the board of directors of …

Destructive Coordination, Charles K. Whitehead

Cornell Law Faculty Publications

An important goal of financial risk regulation is promoting coordination. Law's coordinating function minimizes costly conflict and encourages greater uniformity among market participants. Likewise, privately developed market standards, such as standard-form contracts and rules incorporated into widely-used vendor technology systems, help to lower transaction costs partly by increasing coordination.

By contrast, much of financial economics is premised on a world without coordination. Basic tools used to manage financial risk presume that changes in asset prices follow a random walk and individuals buy and sell assets independently. Thus, a bedrock premise of traditional risk management is that a portfolio manager’s actions …