Law Commons^™

Fenceposts Without A Fence, Katherine E. Di Lucido, Nicholas K. Tabor, Jeffery Y. Zhang

Vanderbilt Law Review

Banking organizations in the United States have long been subject to two broad categories of regulatory requirements. The first is permissive: a "positive" grant of rights and privileges, typically via a charter for a corporate entity, to engage in the business of banking. The second is restrictive: a "negative" set of conditions on those rights and privileges, limiting conduct and imposing a program of oversight and enforcement, by which the holder of that charter must abide. Together, these requirements form a legal cordon, or "regulatory perimeter," around the U.S. banking sector.

The regulatory perimeter figures prominently in several ongoing policy …

Regulating Global Stablecoins: A Model-Law Strategy, Steven L. Schwarcz

Vanderbilt Law Review

Digital currencies have the potential to improve the speed and efficiency of the payment system. The principal challenge is retail: to facilitate day-to-day payments among consumers as an alternative to cash, both domestically and across national borders. Two models of digital currencies are becoming viable: central bank digital currencies and nongovernment-issued currencies that are backed by assets having intrinsic value (stablecoins or, when widely used internationally, global stablecoins). Because they are not government issued, global stablecoins present complex and novel cross-border regulatory challenges, including managing the costs of complying with a multitude of national laws and ensuring international legal enforceability. …

The People's Ledger: How To Democratize Money And Finance The Economy, Saule T. Omarova

Vanderbilt Law Review

The COVID-19 crisis underscored the urgency of digitizing sovereign money and ensuring universal access to banking services. It pushed two related ideas—the issuance of central bank digital currency and the provision of retail deposit accounts by central banks-—to the forefront of the public policy debate. To date, however, the debate has not produced a coherent vision of how democratizing access to central bank money would—and should—transform and democratize the entire financial system. This lack of a systemic perspective obscures the enormity of the challenge and dilutes our ability to tackle it.

This Article takes up that challenge. It offers a …

Why Supervise Banks? The Foundations Of The American Monetary Settlement, Lev Menand

Vanderbilt Law Review

Administrative agencies are generally designed to operate at arm’s length, making rules and adjudicating cases. But the banking agencies are different: they are designed to supervise. They work cooperatively with banks and their remedial powers are so extensive they rarely use them. Oversight proceeds through informal, confidential dialogue.

Today, supervision is under threat: banks oppose it, the banking agencies restrict it, and scholars misconstrue it. Recently, the critique has turned legal. Supervision’s skeptics draw on a uniform, flattened view of administrative law to argue that supervision is inconsistent with norms of due process and transparency. These arguments erode the intellectual …

Central Banks And Climate Change, Christina P. Skinner

Vanderbilt Law Review

Central banks are increasingly called upon to address climate change. Proposals for central bank action on climate change range from programs of “green” quantitative easing to increases in risk-based capital requirements meant to deter banks from lending to climate-unfriendly business. Politicians and academics alike have urged climate risk as both macroeconomic and financial stability risk. Relative to counterparts abroad, the U.S. central bank—-the Federal Reserve—-has been more measured in its response.

This Article offers a legal explanation why. It urges that, despite the substantive importance of climate change, the U.S. Federal Reserve presently has relatively limited legal authority to address …

Regulating Fintech, William Magnuson, William J. Magnuson

Vanderbilt Law Review

The global financial crisis of 2008 ushered in the most sweeping reform of financial regulation in the United States since the New Deal. Alarmed by the systemic risk that financial institutions posed to the broader economy, as well as perceived abuses engendered by the "too big to fail" mindset among banking executives, legislators moved quickly to impose a slew of new requirements on the financial sector. These reforms, passed under the umbrella of the Dodd-Frank Act, drastically altered the regulatory landscape for financial institutions.' Wall Street firms found themselves subject to a bewildering array of new regulatory requirements, from restrictions …

The Chancery Bank Of Delaware: Appraisal Arbitrageurs Expose Need To Further Reform Defective Appraisal Statute, Stanley Onyeador

Vanderbilt Law Review

A dark pool, a form of Alternative Trading System ("ATS"), is a private securities trading platform that-unlike public exchanges such as the New York Stock Exchange-allows participants to execute large block trades with delayed public disclosure. As neither party in a dark market transaction is trading on the public, or "lit," market or knows the identity of its counterparty, dark market trades allow participants to trade anonymously and keep trade strategies from competitors. Further, because dark market trades do not have to be publicly disclosed in real time, the price of a given security will, theoretically, stay relatively stable as …

In Praise Of Ex Ante Regulation, Brian Galle

Vanderbilt Law Review

The plaintiffs' daughter was four years old when they brought her in to the local medical clinic. Clinic staff gave the girl a sedative to keep her calm while they examined her, but they miscalculated the dose, and she later died.' Tort liability, or the specter of it, is supposed to discourage these kinds of preventable tragedies. The clinic's owner, fearing a potential crippling award to bereaved families, should have trained his staff more carefully. As it happens, the owner instead had carefully scooped all the assets out of the firm. When the girl's parents won a $34.6 million award …

Proposed Legal Constraints On Private Student Lenders, Mary C. Nicoletta

Vanderbilt Law Review

Many American high school graduates face a difficult choice: They can pursue higher education and the higher earnings it provides, but that means taking on debt that it may take them decades to pay back. Or they can forego a college degree and its attendant debt but be stuck earning lower wages for their entire lives. For many of these students, there is no viable third option. From an early age, many Americans have been told about the value of a college degree-without one, finding a job is difficult and lifetime income is severely depressed. Data relating educational attainment to …

Destructive Federal Preemption Of State Wealth Transfer Law In Beneficiary Designation Cases: Hillman Doubles Down On Egelhoff, John H. Langbein

Vanderbilt Law Review

The probate codes in about a third of the states contain a so-called divorce revocation provision, applicable both to probate and nonprobate transfers. Such statutes address the situation in which a transferor's will or will substitute designates as a beneficiary a person who was the transferor's spouse at the time that the transferor executed the document, but whom the transferor later divorced. The premise of these statutes is that divorce entails a profound change of circumstances not foreseen by the transferor, and that the transferor is unlikely to have intended to benefit an ex-spouse. Accordingly, the intent- implementing purpose of …

Regulation By Hypothetical, Mehrsa Baradaran

Vanderbilt Law Review

A new paradigm is afoot in banking regulation-and it involves a turn toward the more speculative. Previous regulatory instruments have included geographic restrictions, activity restrictions, disclosure mandates, capital requirements, and risk management oversight to ensure the safety of the banking system. This Article describes and contextualizes these regulatory tools and shows how and why they were formed to deal with industry change. The financial crisis of 2008 exposed the shortcomings in each of these regimes. In important ways, the Wall Street Reform and Consumer Protection Act of 2010 ('Dodd-Frank') departs from these past regimes and proposes something new: Call it …

Save Now, Win Later: Removing Statutory Barriers To Prize-Linked Savings Initiatives, Ann E. Watford

Vanderbilt Law Review

In February of 2010, Billie June Smith received exciting news. As the lucky winner of a statewide drawing, this elderly woman was awarded a giant check for $100,000. Billie June's good fortune cost her nothing, for she did not spend any money on the winning ticket. Instead, she became eligible for the grand prize when she decided to save for her retirement at her local credit union. Billie June was the inaugural grand-prize winner of "Save to Win," an innovative pilot program that launched in 2009 to test a concept known as prize-linked savings. In partnership with the nonprofit Doorways …

A Regulatory Design For Monetary Stability, Morgan Ricks

Vanderbilt Law Review

This Article proposes a unified regulatory approach to the issuance of "money-claims"--a generic term that refers to fixed-principal, very short-term IOUs, excluding trade credit. The instability of this market is arguably the central problem for financial regulatory policy. Yet our existing regulatory system lacks a coherent approach to this market. The Article proposes a public-private partnership ("PPP") regime, under which only licensed entities would be permitted to issue money - claims (subject to de minimis exceptions). Licensed money- claim issuers would be required to abide by portfolio restrictions and capital requirements. In addition, the government would explicitly insure licensed issuers' …

Making Banks Transparent, Robert P. Bartlett, Iii

Vanderbilt Law Review

It was March 2007, and in the Mediterranean resort of Monte Carlo, Matt King was making dire predictions about a collapse of the U.S. subprime housing market-a subject that must have seemed as inconsequential as it was foreign to most of this casino town's well- heeled visitors. But for Mr. King, head of quantitative credit strategy for Citigroup, the ramifications of rising subprime foreclosure rates were anything but inconsequential. Speaking at Citigroup's annual credit conference, King emphasized how subprime credit had been repackaged into securities such as collateralized debt obligations ("CDOs"), which now sat in large quantities on banks' balance …

The New Exit In Venture Capital, Darian M. Ibrahim

Vanderbilt Law Review

This Article is the first to explore the emergence of a potentially game-changing third exit option in venture capital: secondary markets for the sale of individual ownership interests in private start-ups and venture capital funds.6 Unlike IPOs and trade sales, secondary markets operate at the individual investor level rather than at the start-up level. Because investors have different liquidity needs, an individual-investor option offers exit to those who need it-for example, to the serial entrepreneur who wishes to start another venture or to the VC whose fund is about to expire and who must return capital to his investors. Secondary …

Fourt (Or Five) Easy Lessons From Enron, Douglas G. Baird, Robert K. Rasmussen

Vanderbilt Law Review

Temptation. It lies at the heart of financial swindles. The promise of 50% returns in three months can lure thousands of investors-so too can a stock that soars 500% in three years. But those who are tempted are often skeptical. Before they invest, they want to know how one can enjoy such supracompetitive returns. The answer usually is a facially plausible story, though with a bit of mystery attached. The mystery is often touted as the reason that the investment opportunity is exclusive to the entrepreneur who discovered it. It is what ensures that the gains are not competed away. …

Shame On You: Campaign Finance Reform Through Social Norms, Todd R. Overman

Vanderbilt Law Review

In 1998, Senator Russell Feingold squared off against Representative Mark Neumann in a heated contest for a Wisconsin Senate seat. During the campaign, Representative Neumann and Senator Feingold voluntarily entered into a number of campaign finance restrictions.' Representative Neumann, despite losing the race to Senator Feingold, asserted that those restrictions "showed that campaign finance reform didn't require changes in law and was best handled on a voluntary basis.' In the 2000 New York Senate race, Representative Rick Lazio echoed Representative Neumann's sentiment and declared that it was he and "Mrs. Clinton's opportunity, to make a statement about our commitment to …

Credit Cards And Debit Cards In The United States And Japan, Ronald J. Mann

Vanderbilt Law Review

The widespread use of cards is one of the most salient features of consumer retail payment systems in the United States. American consumers use those cards to pay for about one-fourth of their retail purchases each year.' And this is not a static phenomenon; among other things, the use of debit cards, though still relatively small, is rising rapidly. That pattern of use is not, however, typical of other countries. Even in some highly industrialized nations, consumers use cards to pay for purchases much less frequently. Statistics from the Bank for International Settlements, for example, suggest about sixty card-based payment …

Calling Off The Lynch Mob: The Corporate Director's Fiduciary Disclosure Duty, Lawrence A. Hamermesh

Vanderbilt Law Review

Two parallel bodies of American law establish the obligations of corporate directors to disclose information about the corporation to its existing stockholders: (1) the Securities Exchange Act of 1934, and (2) state common law, including doctrines such as fraud and negligent misrepresentation. Although these state common law doctrines have been applied to transactions in corporate securities, their significance has been largely eclipsed by comprehensive federal regulation.

Of growing importance, however, is a state law duty that courts have created and imposed upon directors based upon their fiduciary relation to the corporation and its stockholders. In the last twenty years, this …

Is The Cross-Guarantee Constitutional?, Jennifer J. Alexander

Vanderbilt Law Review

Banks play a unique and important role in our economy. They serve tremendously useful economic functions; for this reason, our society has become irretrievably dependent upon them. Banks safe- guard our life savings and business profits, and provide capital to those who need it to buy, invest, or grow.' Although these functions could be performed without an intermediary-private citizens may freely lend their cash to other private citizens who need it-banks are viewed as safer and more efficient controllers of cash flow. They allow depositors to pool their cash resources collectively in one institution; then, retaining a relatively low amount …

A Theory Of The Regulation Of Debtor-In-Possession Financing, George G. Triantis

Vanderbilt Law Review

The profile of Chapter 11 of the Bankruptcy Code in public consciousness has surged recently. Other than the automatic stay on the enforcement of claims, the most publicized feature of bankruptcy reorganizations is debtor-in-possession (DIP) financing. Indeed, along with the bankruptcy stay, DIP financing is the motivation for many Chapter 11 filings. Under Section 364 of the Code, a firm in bankruptcy (the debtor in possession) can finance its ongoing operations and investments by issuing new debt that enjoys any one of various levels of priority, all of which rank higher than the firm's prepetition unsecured debt.' The debtor's financing …

Written Agreements In The Lender-Borrower Context: The Illusion Of Certainty, Robert D. Rowe

Vanderbilt Law Review

Recent legal battles in the lender-borrower arena have received widespread attention. The fact that these battles occur merits little surprise because borrowers often seek recourse against lenders when financial commitments go awry. Moreover, recent lender-borrower cases do not introduce any new legal theories. The outcome is the noteworthy feature of these cases. Borrowers increasingly are obtaining judgments against lenders. This Note examines recent lender-borrower cases from a contractual perspective, analyzing the application of traditional contract principles in the lender-borrower context. Part II of this Note contends that courts are trying to address three concerns in the lender-borrower context: maintenance of …

Making Criminal Defense A Crime Under 18 U.S.C. Section 1957, Paul G. Wolfteich

Vanderbilt Law Review

In 1984 the President's Commission on Organized Crime concluded that money laundering was the lifeblood of organized crime.'The Commission found that drug traffickers and racketeers exploited weaknesses in the Bank Secrecy Act to launder much of their income,estimated by one source to be 150 billion dollars annually. In response,the Commission recommended legislation to strengthen currency reporting laws, to extend the investigative powers of federal agencies, and to create a new money laundering offense.' This new legislation would hold criminally liable persons who conduct a monetary transaction with knowledge or reason to know that the funds involved were derived from unlawful …

Prepayment Penalties: A Survey And Suggestion, Robert K. Baldwin

Vanderbilt Law Review

Borrowers often wish, for various reasons, to satisfy their indebtedness prior to the maturity of the loan agreement. Conversely, lenders often wish to prevent early payment of the debt or,alternatively, to exact a fee from the borrower for the privilege of prepaying the debt. Between seven and ten percent of the approximately thirty-two million loans secured by mortgages on real estate are prepaid each year.' At least seventy percent of these loans contain a provision in the loan agreement calling for a penalty in the event of prepayment. This Note discusses the rights of lenders and borrowers when a borrower …

Nonbank Banks: Congressional Options, Davis W. Turner

Vanderbilt Law Review

The Bank Holding Company Act I (BHCA) defines a bank as an institution that both accepts demand deposits and makes commercial loans. An institution choosing to perform only one of these two activities falls outside the scope of the BHCA and constitutes a "non-bank bank." The creators of a non-bank bank receive two principal benefits from the institution's status as a non-bank bank. First, a bank holding company acquiring a non-bank bank can avoid the geographical restrictions imposed by the Douglas Amendment to the BHCA. Second, a company outside of the banking industry may acquire a non-bank bank without becoming …

The Future Of Shared Automatic Teller Networks In The Wake Of Marine Midland Bank: A Call For Federal Legislation, Cynthia Y. Reisz

Vanderbilt Law Review

This Recent Development contends that the Second Circuit's reversal of the lower court decision only temporarily preserves the regional and national interchange systems that have become increasingly popular in the last several years. Federal legislation is necessary to ensure the development of electronic banking technology and to reestablish competitive equality in the dual banking system. Part II traces the treatment of ATMs and shared ATM networks by state legislatures, the Office of the Comptroller of the Currency, and federal courts since the enactment of the McFadden Act. Part III discusses the Marine Midland Bank decision as the first case to …

Chapters 11 And 13 Of The Bankruptcy Code -- Observations On Using Case Authority From One Of The Chapters In Proceedings Under The Other, David G. Epstein, Christopher Fuller

Vanderbilt Law Review

This Article will focus on the relationship between Chapter 11 and Chapter 13 of the Bankruptcy Code.' A number of issues are similar or identical in Chapter 11 and Chapter 13. Furthermore,much of the language of Chapter 13 mirrors that of Chapter 11. This Article explores whether courts should apply case law and concepts of one chapter when similar issues arise in proceedings under the other chapter. Parts II and III of this Article address basic similarities and differences between Chapters 11 and 13. Parts IV, V, and VI examine three issues governed by statutory language common to both chapters. …

Markets For Money -- Does The Garn-St.Germain Money Market Deposit Account Overcompete With Mutual Funds, Betty R. Turner

Vanderbilt Law Review

Since 1980 the financial marketplace has experienced a period of rapid evolution during which financial institutions have abandoned their differentiated product and service lines, within government regulatory limits, to compete with each other in obtaining funds from depositors and investors. For example, only commercial banks historically provided checking account services; now, many depository and nondepository institutions offer transaction services similar to checking accounts. The thrift institutions --savings and loan associations, mutual savings banks, and credit unions -- provide their customers with "checking" account services through negotiable order of withdrawal (NOW) accounts and share draft accounts. Investment banking houses, nondepository institutions,introduced …

Usury Legislation - Its Effects On The Economy And A Proposal For Reform, Mark B. Riley

Vanderbilt Law Review

This Note examines both the original and current purposes of general usury ceilings and evaluates the success of the ceilings in achieving these purposes. In addition, the Note considers the impact of the present form of usury legislation on the economy of those states that have such ceilings and proposes a model usury statute that attempts to accomplish the social policy objectives of the current legislation while also minimizing detrimental and unintentional effects on the economy...

This Note suggests that the proposal outlined above would solve the majority of the problems created by the present statutory form. The proposal recognizes …

A Regulator's View Of Banks In Community Development, Frank Wille

Vanderbilt Law Review

By and large, the nation's banks have not publicized the story of their significant, sometimes crucial, role in community development. For this low-profile approach, they have paid a high price in lack of public understanding and legislative empathy. Their record,however, is impressive, particularly if "community development" is broadly defined to include the various forms of assistance that banks render to state and local governments that sponsor or finance community development projects.