Law Commons^™

Competition And Crisis In Mortgage Securitization, Michael Simkovic

Indiana Law Journal

U.S. policy makers often treat market competition as a panacea. However, in the case of mortgage securitization, policy makers’ faith in competition is misplaced. Competitive mortgage securitization has been tried three times in U.S. history— during the 1880s, the 1920s, and the 2000s—and every time it has collapsed. Most recently, competition between mortgage securitizers led to a race to the bottom on mortgage underwriting standards that ended in the late 2000s financial crisis. This Article provides original evidence that when competition was less intense and securitizers had more buyer power, securitizers acted to monitor mortgage originators and to maintain prudent …

Bank Capital Regulation By Enforcement: An Empirical Study, Julie A. Hill

Indiana Law Journal

Improving commercial bank capital requirements has been a top priority on the regulatory agenda since the beginning of the 2008 financial crisis. Unfortunately, some of the information necessary to make informed decisions about capital regulation has been missing. Existing regulations establish numerical capital requirements. Regulators, however, have significant discretion to set higher capital requirements for individual banks. In considering necessary reforms, regulators often focus on specific numerical requirements but sometimes ignore enforcement efforts. Without clear information about capital enforcement, it is impossible to make informed judgments about the current capital regulation system.

This Article provides a more complete picture of …

Beyond Bailouts: Federal Tools For Preventing State Budget Crises, Brian D. Galle, Kirk J. Stark

Indiana Law Journal

More than two years after the official end of the Great Recession, state governments still face significant budget deficits that cannot be addressed without further drastic spending cuts or substantial revenue increases. The structural origins of the ongoing state fiscal crisis are well known. Excessively procyclical revenue structures, combined with spending obligations that increase with economic downturns, have resulted in a budget dynamic for the states that is not sustainable over the long term. The consensus solution to this problem is for states to save money during boom times (via budget stabilization or “rainy day” funds) and to draw on …

Regulating On The Fringe: Reexamining The Link Between Fringe Banking And Financial Distress, Jim Hawkins

Indiana Law Journal

Critics of fringe banking—products like payday loans, pawn loans, and rent-toown leases—frequently argue that these products cause borrowers to experience financial distress. This argument has enormous intuitive appeal: Fringe credit is very costly, and usually the borrowers who use it are already in a serious financial bind. Taking on additional debt and paying high prices for it, the reasoning goes, drive them over the brink. Surprisingly, however, linking financial distress to fringe banking is extremely difficult to do. This Article represents the first attempt to uncover the relationship between fringe banking and financial distress by systematically analyzing the structure of …