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The Political Economy Of Dodd-Frank: Why Financial Reform Tends To Be Frustrated And Systemic Risk Perpetuated, John C. Coffee Jr.
The Political Economy Of Dodd-Frank: Why Financial Reform Tends To Be Frustrated And Systemic Risk Perpetuated, John C. Coffee Jr.
Faculty Scholarship
A good crisis should never go to waste. In the world of financial regulation, experience has shown – since at least the time of the South Sea Bubble three hundred years ago – that only after a catastrophic market collapse can legislators and regulators overcome the resistance of the financial community and adopt comprehensive "re-form" legislation. U.S. financial history both confirms and conforms to this generalization. The Securities Act of 1933 and the Securities Exchange Act of 1934 were the product of the 1929 stock-market crash and the Great Depression, with their enactment following the inauguration of President Franklin Roosevelt …
Bail-Ins Versus Bail-Outs: Using Contingent Capital To Mitigate Systemic Risk, John C. Coffee Jr.
Bail-Ins Versus Bail-Outs: Using Contingent Capital To Mitigate Systemic Risk, John C. Coffee Jr.
Faculty Scholarship
Because the quickest, simplest way for a financial institution to increase its profitability is to increase its leverage, an enduring tension will exist between regulators and systemically significant financial institutions over the issues of risk and leverage. Many have suggested that the 2008 financial crisis was caused because financial institutions were induced to increase leverage because of flawed systems of executive compensation. Still, there is growing evidence that shareholders acquiesced in these compensation formulas to cause managers to accept higher risk and leverage. Shareholder pressure then is a factor that could induce the failure of a systemically significant financial institution. …