Law Commons^™

Seila Law: Is There A There There?, Jack M. Beermann

Faculty Scholarship

In Seila Law LLC v. Consumer Financial Protection Bureau, the Supreme Court, in an opinion by Chief Justice John Roberts, invalidated the provision of the Dodd-Frank Act restricting the president's removal of the director of the Consumer Financial Protection Bureau (CFPB) to cases of "inefficiency, neglect of duty, or malfeasance in office." The Court's decision leaves the director subject to removal by the president for any reason or no reason at all.

This Essay on the Seila Law decision makes three points. First, because there is no legal or historical support for the Court's distinction between independent agencies headed …

Mind The Gap: A Comparative Approach For Fixing Volcker, Learning From Liikanen, And Using Vickers To Repair The U.S. Banking System, Rachel Sereix

Duke Journal of Constitutional Law & Public Policy Sidebar

After the 2008 financial crisis, Congress, courts, and international banking agencies alike determined that their current banking infrastructures were inadequate to prevent such crises in the future. The Dodd-Frank Wall Street Reform Acttried to solve the problem by reducing derivatives-related risk through legislative provisions that increased capital and liquidity requirements for all banks. Yet, banks continued to find means to subvert the system and Congress remained relatively silent on the issue after the passage of Dodd-Frank—failing to amend Dodd-Frank in any meaningful way. Looking towards European peers for guidance about how to reform the United States’ banking regime has often …

Esg And Climate Change Blind Spots: Turning The Corner On Sec Disclosure, Cynthia A. Williams, Donna M. Nagy

Articles by Maurer Faculty

This article examines four areas in which the SEC, for more than a decade, resisted reform or impeded shareholders’ access to sought-after environmental, social, and governance (ESG) information. These areas are: (1) the SEC’s refusal to act on several rulemaking petitions submitted during the years 2009 to 2018, which called for expanded ESG disclosure; (2) the SEC’s grudging promulgation of rules concerning social disclosures as required by Congress in the Dodd-Frank Act of 2010; (3) the SEC’s 2020 revisions to SEC Rule 14a-8, which make the submission of shareholder proposals more difficult, thereby thwarting investor efforts to raise ESG concerns; …

Securities Scholars' Comment Letter On Draft Whistleblower Award And Protection Act, Andrew K. Jennings, Samantha J. Prince, Benjamin P. Edwards, Andrew C. Baker

Faculty Scholarly Works

In May 2020, the North American Securities Administrators Association (NASAA), an organization representing state and provincial securities regulators in Canada, the United States, and Mexico, released a draft Model Whistleblower Award and Protection Act (the Proposed Act) for public comment. The Proposed Act drew from securities-whistleblower statutes in Utah and Indiana, as well as the federal Sarbanes-Oxley and Dodd-Frank Acts.

In brief, the Proposed Act provided for a state-level securities whistleblower-award program and an anti-retaliation private right of action. NASAA received seven comment letters, including one from securities scholars. Our securities scholars’ letter highlighted two areas of concern. First, we …

The 'Too Big To Fail' Problem, Saule T. Omarova

Cornell Law Faculty Publications

“Too big to fail” – or “TBTF” – is a popular metaphor for a core dysfunction of today’s financial system: the recurrent pattern of government bailouts of large, systemically important financial institutions. The financial crisis of 2008 made TBTF a household term, a powerful rhetorical device for expressing the widely shared discontent with the pernicious pattern of “privatizing gains and socializing losses” it came to represent in the public’s eye. Ten years after the crisis, TBTF continues to frame much of the public policy debate on financial regulation. Yet, the analytical content of this term remains remarkably unclear.

Taking a …

The Federalization Of Corporate Governance—An Evolving Process, Marc I. Steinberg

Faculty Journal Articles and Book Chapters

This Article focuses on the timely subject of the federalization of corporate governance in the United States from both contemporary and historical perspectives. Although the states traditionally have overseen the sphere of corporate governance, federal law today affects the governance of publicly held corporations to a greater extent than ever before in our nation’s history. This Article, drawn from the author’s recently published Oxford University Press book (The Federalization of Corporate Governance), addresses this timely subject from the commencement of the 20th century to the present. Through the decades, the federalization of corporate governance has gone through periods …

The Risk Of An Anti-Consumer Cfpb, Christopher L. Peterson

Utah Law Faculty Scholarship

The risks of an anti-consumer CFPB go beyond just those cases currently under investigation. America has a massive financial sector that is constantly evolving and reinventing itself. This striving for innovation and efficiency is, of course, one of the American financial system’s great advantages. Nevertheless, the Sun-Tzu-worshipping, MBA-wielding financiers that use boilerplate consumer credit contracts as weapons in their endless market-share battles are paying attention to what the agency is doing—and more importantly, to what it is not doing. A chilled CFPB law enforcement program will embolden the consumer finance industry to roll out more misleading advertising, more deceptive sales …

Choosing Corporations Over Consumers: The Financial Choice Act Of 2017 And The Cfpb, Christopher L. Peterson

Utah Law Faculty Scholarship

The Financial Choice Act of 2017 is appropriately named in at least one sense: its proposed restrictions on the authority of the Consumer Financial Protection Bureau reflect a choice by the House of Representatives to protect financial companies at the expense of consumers. This choice is borne out by the data. As this empirical review of CFPB enforcement cases demonstrates, nearly all of the relief provided to American consumers in CFPB enforcement cases arose where a bank, credit union, or other finance company deceived their customers about a material aspect of their product or service. Between 2012 and 2016, the …

Dictation And Delegation In Securities Regulation, Usha Rodrigues

Scholarly Works

When Congress undertakes major financial reform, either it dictates the precise contours of the law itself or it delegates the bulk of the rulemaking to an administrative agency. This choice has critical consequences. Making the law self-executing in federal legislation is swift, not subject to administrative tinkering, and less vulnerable than rulemaking to judicial second-guessing. Agency action is, in contrast, deliberate, subject to ongoing bureaucratic fiddling and more vulnerable than statutes to judicial challenge.

This Article offers the first empirical analysis of the extent of congressional delegation in securities law from 1970 to the present day, examining nine pieces of …

The Bylaw Puzzle In Delaware Corporate Law, David A. Skeel Jr.

All Faculty Scholarship

In less than a decade, Delaware’s legislature has overruled its courts and reshaped Delaware corporate law on two different occasions, with proxy access bylaws in 2009 and with shareholder litigation bylaws in 2015. Having two dramatic interventions in quick succession would be puzzling under any circumstances. The interventions are doubly puzzling because with proxy access, Delaware’s legislature authorized the use of bylaws or charter provisions that Delaware’s courts had banned; while with shareholder litigation, it banned bylaws or charter provisions that the courts had authorized. This Article attempts to unravel the puzzle.

I start with corporate law doctrine, and find …

The Sec's Shift To Administrative Proceedings: An Empirical Assessment, Stephen J. Choi, Adam C. Prichard

Articles

Congress has repeatedly expanded the authority of the SEC to pursue violations of securities laws in proceedings adjudicated by the SEC's own administrative law judges, most recently through the Dodd-Frank Act. We report the results from an empirical study of SEC enforcement actions against non-financial public companies to assess the impact of the Dodd-Frank Act on the balance between civil court and administrative enforcement actions. We show a general decline in the number of court actions and an increase in the number of administrative proceedings post-Dodd-Frank. At the same time, we show an increase in average civil penalties post-Dodd-Frank for …

Consumer Financial Protection Bureau Law Enforcement: An Empirical Review, Christopher L. Peterson

Utah Law Faculty Scholarship

In the aftermath of the U.S. financial crisis, Congress created a new federal agency — the Consumer Financial Protection Bureau (CFPB) — with the goal of fashioning a more just and efficient American consumer finance market. The CFPB now serves as the U.S. Government’s primary regulator and civil law enforcement agency governing consumer lending, payment systems, debt collection, and other consumer financial services. In its first four years of enforcing federal consumer protection laws, the CFPB has announced over a hundred different law enforcement cases forcing banks and other financial companies to relinquish over $11 billion in customer refunds, forgiven …

Investing And Pretending, Anita Krug

All Faculty Scholarship

One of the more prominent components of Dodd–Frank’s regulatory changes was Title VII, providing for the regulation of the over-the-counter derivatives known as “swaps.” A swap is a financial instrument whose value is based on an asset—the “reference asset”—that is wholly unrelated to the swap itself. Although there was much ado about swap regulation immediately after Dodd–Frank’s enactment, the same cannot be said of the many rules that the Commodity Futures Trading Commission (“CFTC”) has subsequently adopted pursuant to its authority under Title VII. This Article critically evaluates the CFTC’s “swap rules” and identifies the regulatory vision that they reflect. …

Framing Elite Consensus, Ideology And Theory And A Classcrits Response, Athena D. Mutua

Journal Articles

This short paper, really a thought piece, builds upon the examination begun in the Foreword of the ClassCrits VI Symposium which sought to outline a ClassCrits critique of neoclassical economic principles. It argues that neoliberal practices, theory and ideology, built on the scaffold of neoclassical economic ideas, frame an elite consensus that makes elites feel good but which are ethically, intellectually, and structurally problematic for the social well-being of most Americans. It does so, in part, by chronicling a number of recent practices of large corporations, including for example, the practice of inversion. Again, this paper takes as its specific …

Putting The 'Financial Stability' In Financial Stability Oversight Council, Hilary Allen

Articles in Law Reviews & Other Academic Journals

For all the ink that has been spilled on the topic of financial regulation since the financial crisis of 2007-2008, there has been little examination of the competing normative goals of financial regulation. Should the financial system be treated as an end in itself such that the efficiency of that system is the primary goal? Or should financial regulation instead treat the financial system as a means to the end of broader economic growth? This Article argues for the latter approach, and stakes out the controversial normative position that financial stability, rather than efficiency, should be the paramount focus of …

Improving Agencies’ Preemption Expertise With Chevmore Codification, Kent H. Barnett

Scholarly Works

After nearly thirty years, the judicially crafted Chevron and Skidmore judicial-review doctrines have found new life as exotic, yet familiar, legislative tools. When Chevron deference applies, courts employ two steps: they consider whether the statutory provision at issue is ambiguous, and, if so, they defer to an administering agency’s reasonable interpretation. Skidmore deference, in contrast, is a less deferential regime in which courts assume interpretative primacy over statutory ambiguities but defer to agency action based on four factors — the agency’s thoroughness, reasoning, consistency, and overall persuasiveness. In the Dodd-Frank Wall Street Reform and Consumer Protection Act, Congress directed courts …

Regulation By Hypothetical, Mehrsa Baradaran

Scholarly Works

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 …

Broker-Dealers, Institutional Investors, And Fiduciary Duty: Much Ado About Nothing, Lin (Lynn) Bai

Faculty Articles and Other Publications

Under the mandate of Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, the SEC is soliciting public opinions on whether broker-dealers should be subject to a fiduciary duty when advising retail and institutional investors. This paper focuses on the advisability of such a proposal for institutional investors. It shows that (1) a fiduciary duty could potentially enhance broker-dealers’ standard of conduct for only a subset of institutional investors who are well capitalized, capable of assessing risks independently, and acknowledge in writing their non-reliance on broker-dealers’ advice. Thus, the benefit of fiduciary duty is much narrower than what its …

Banking And The Social Contract, Mehrsa Baradaran

Scholarly Works

This article asserts that there exists today and has always existed an interdependent relationship between banks and the state. I refer to this connection and its mutual benefits and responsibilities as a social contract. When Alexander Hamilton responded to President Washington’s inquiry about the advisability of a national bank, he wrote that “such a Bank is not a mere matter of private property, but a political machine of the greatest importance to the State.” This social contract has existed since the inception of banking in the United States and has been reinforced over time, but it has recently become weakened …

Clearinghouses As Liquidity Partitioning, Richard Squire

Faculty Scholarship

To reduce the risk of another financial crisis, the Dodd-Frank Act requires that trading in certain derivatives be backed by clearinghouses. Critics mount two main objections: a clearinghouse shifts risk instead of reducing it; and a clearinghouse could fail, requiring a bailout. This Article’s observation that clearinghouses engage in liquidity partitioning answers both. Liquidity partitioning means that when one of its member firms becomes bankrupt, a clearinghouse keeps a portion of the firm’s most liquid assets, and a matching portion of its short-term debt, out of the bankruptcy estate. The clearinghouse then applies the first toward immediate repayment of the …

Three Proposals For Regulating The Distribution Of Home Equity, Ian Ayres, Joshua Mitts

Faculty Scholarship

The Consumer Financial Protection Bureau’s recently-released “qualified mortgage” rules effectively discourage predatory lending but miss an equally important source of systemic risk: low-equity clustering. Specific “volatility-inducing” mortgage terms, when present in a substantial cluster of mortgage contracts, exacerbate macroeconomic risk by increasing the chance that the housing and lending markets will have to absorb a wave of simultaneous defaults after a downturn in housing prices. This Article shows that these terms became prevalent in a substantial proportion of residential mortgages in the years leading up to the home mortgage crisis. In contrast, during the earlier “amortization era” (when mortgagors were …

On Duopoly And Compensation Games In The Credit Rating Industry, Robert J. Rhee

Faculty Scholarship

Credit rating agencies are important institutions of the global capital markets. If they had performed properly, the financial crisis of 2008–2009 would not have occurred, and the course of world history would have been different. There is a near universal consensus that reform is needed, but none as to the best approach. The problem has not been solved. This Article offers the simplest fix proposed thus far, and it is contrarian. Unlike other reform proposals, this Article accepts the central role of rating agencies in the regulation of bond investments, the realities of a duopoly, and the issuer-pay model of …

The Growing Regulatory State Of Banking, Alberto R. Gonzales

Law Faculty Scholarship

Our country has often struggled with finding the right balance between too little and too much regulation. Some regulation and oversight is necessary--if for nothing more than to level the playing field. The danger, of course, is that government officials often do not fully appreciate how the heavy hand of regulation affects business, nor anticipate how legislation will affect the markets long term. Lawmakers in several states have introduced resolutions calling on Congress to spit up big banks by separating traditional banking services and investment banking. Five years after the financial crisis, these state resolutions show there is still public …

On Duopoly And Compensation Games In The Credit Rating Industry, Robert J. Rhee

UF Law Faculty Publications

Credit rating agencies are important institutions of the global capital markets. If they had performed properly, the financial crisis of 2008-2009 would not have occurred, and the course of world history would have been different. There is a near universal consensus that reform is needed, but none as to the best approach. The problem has not been solved. This Article offers the simplest fix proposed thus far, and it is contrarian. This Article accepts the central role of rating agencies in the regulation of bond investments, the realities of a duopoly, and the issuer-pay model of compensation. The status quo …

Transitive Counterparty Risk And Financial Contracts, Manuel A. Utset

Scholarly Publications

No abstract provided.

Striking The Right Balance: Investor And Consumer Protection In The New Financial Marketplace: Introduction, Lisa Fairfax, Arthur E. Wilmarth Jr

All Faculty Scholarship

On March 2, 2012, The George Washington University Law School's Center for Law, Economics & Finance and The George Washington Law Review jointly hosted a symposium entitled "Striking the Right Balance: Investor and Consumer Protection in the New Financial Marketplace."' The symposium focused on two principal topics. First, participants analyzed the impact of the Dodd-Frank Wall Street Reform and Consumer Protection Act ("Dodd-Frank") on investors and consumers in three areas of federal regulation-securities markets, derivatives markets, and consumer financial products. Second, the symposium evaluated the Sarbanes-Oxley Act of 2002 ("Sarbanes-Oxley") on its tenth anniversary and considered whether Sarbanes-Oxley's legacy might …

Revolution In Manipulation Law: The New Cftc Rules And The Urgent Need For Economic And Empirical Analyses, Rosa M. Abrantes-Metz, Gabriel V. Rauterberg, Andrew Verstein

Articles

Three major banks have now admitted that their employees manipulated worldwide interest rates through the London Interbank Offered Rate (Libor), the most widely used interest rate index. Libor is the interest rate term for trillions of dollars of swaps and loans, and its manipulation may have been used to extract billions of dollars. These allegations come just as commodities manipulation law has been dramatically reformed and the Commodity Futures Trading Commission (CFTC) given vast new regulatory powers. This Article provides the first extended, scholarly analysis of the CFTC’s new anti-manipulation rules. We consider the difficulty the rules address: Commodities manipulation …

Rethinking U.S. Investment Adviser Regulation, Anita Krug

All Faculty Scholarship

(Excerpt)Now, in the aftermath of Dodd-Frank's enactment and the SEC's associated bout of rulemaking, one might think that the Advisers Act's regulatory regime is a workable and effective one, equipped to address - and address efficiently - the investor-protection risks that the twenty-first-century investment adviser industry produces. In fact, however, Dodd-Frank did not touch - and, indeed, Dodd-Frank's crafters indicated no awareness of - many of the Advisers Act's longstanding troubles. Additionally, the changes Dodd-Frank brought about have their own considerable deficiencies. As this Article contends, the U.S. investment adviser regulatory regime, now seventy-four years old, is in need of …

Corporate Actors, Corporate Crimes And Time-Inconsistent Preference, Manuel A. Utset

Scholarly Publications

No abstract provided.

A Simpler Approach To Financial Reform, Morgan Ricks

Vanderbilt Law School Faculty Publications

There is a growing consensus that new financial reform legislation may be in order. The Dodd-Frank Act of 2010, while well-intended, is now widely viewed to be at best insufficient, at worst a costly misfire. Members of Congress are considering new and different measures. Some have proposed substantially higher capital requirements for the largest financial firms; others favor an updated version of the old Glass-Steagall regime. This paper offers up a simpler approach, one that centers around the financial sector’s short-term funding. The simpler approach would be compatible with other financial stability reforms, but it is better understood as a …