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Full-Text Articles in Law
Regulating Systemic Risk: Towards An Analytical Framework, Steven L. Schwarcz, Iman Anabtawi
Regulating Systemic Risk: Towards An Analytical Framework, Steven L. Schwarcz, Iman Anabtawi
Faculty Scholarship
The global financial crisis demonstrated the inability and unwillingness of financial market participants to safeguard the stability of the financial system. It also highlighted the enormous direct and indirect costs of addressing systemic crises after they have occurred, as opposed to attempting to prevent them from arising. Governments and international organizations are responding with measures intended to make the financial system more resilient to economic shocks, many of which will be implemented by regulatory bodies over time. These measures suffer, however, from the lack of a theoretical account of how systemic risk propagates within the financial system and why regulatory …
Pricing Terms In Sovereign Debt Contracts: A Greek Case Study With Implications For The European Crisis Resolution Mechanism, Mitu Gulati, Stephen J. Choi, Eric A. Posner
Pricing Terms In Sovereign Debt Contracts: A Greek Case Study With Implications For The European Crisis Resolution Mechanism, Mitu Gulati, Stephen J. Choi, Eric A. Posner
Faculty Scholarship
Conventional wisdom holds that boilerplate contract terms are ignored by parties, and thus are not priced into contracts. We test this view by comparing Greek sovereign bonds that have Greek choice-of-law terms and Greek sovereign bonds that have English choice-of-law terms. Because Greece can change the terms of Greek-law bonds unilaterally by changing Greek Law, and cannot change the terms of English-law bonds, Greek-law bonds should be riskier, with higher yields and lower prices. The spread between the two types of bonds should increase when the probability of Greek default increases. Recent events allow us to test this hypothesis, and …
Chapman Dialogue And Law Review Symposium Keynote Address: Ex Ante Versus Ex Post Approaches To Financial Regulation, Steven L. Schwarcz
Chapman Dialogue And Law Review Symposium Keynote Address: Ex Ante Versus Ex Post Approaches To Financial Regulation, Steven L. Schwarcz
Faculty Scholarship
Ideal financial regulation would work ex ante, to prevent financial failures. Once a failure occurs, there may already be economic damage, and it may be difficult to stop the failure from spreading and becoming systemic. The reality, though, is that preventing financial failures should be only one role for regulators. Even an optimal prophylactic regulatory regime cannot anticipate and prevent every failure. This paper, which formed my Chapman Dialogue Address at Chapman University School of Law and the keynote speech at Chapman Law Review’s 2011 Symposium on the Future of Financial Regulation, attempts to contrast fundamental differences between ex ante …
Identifying And Managing Systemic Risk: An Assessment Of Our Progress, Steven L. Schwarcz
Identifying And Managing Systemic Risk: An Assessment Of Our Progress, Steven L. Schwarcz
Faculty Scholarship
Although a chain of bank failures remains an important symbol of systemic risk, the ongoing trend towards disintermediation—or enabling companies to directly access the ultimate source of funds, the capital (i.e., financial) markets, without going through banks or other financial intermediaries—is making these failures less critical than in the past. While banks and other financial institutions remain important sources of capital, companies today are able to obtain most of their financing through financial markets without the use of intermediaries. As a result, financial markets themselves are increasingly central to any examination of systemic risk.
Keynote Address: A Regulatory Framework For Managing Systemic Risk, Steven L. Schwarcz
Keynote Address: A Regulatory Framework For Managing Systemic Risk, Steven L. Schwarcz
Faculty Scholarship
This accessible analysis of systemic risk regulation was delivered as the keynote speech at an October 20, 2011 European Central Bank conference on regulation of financial services. Many regulatory responses, like the Dodd-Frank Act in the United States, consist largely of politically motivated reactions to the financial crisis, looking for villains (whether or not they exist). To be most effective, however, the regulation must be situated within a more analytical framework. In this speech, I attempt to build that framework, showing that preventive regulation is insufficient and that regulation also must be designed to limit the transmission of systemic risk …
The Paradoxes Of Dodd-Frank, James D. Cox