Law Commons^™

The Administrative State, Financial Regulation, And The Case For Commissions, Kathryn Judge, Dan Awrey

Faculty Scholarship

Administrative law is under attack, with the Supreme Court reviving, expanding, and creating doctrines that limit the authority and autonomy wielded by regulatory agencies. This anti-administrative turn is particularly alarming for financial regulation, which already faces enormous challenges stemming from the dynamism of modern finance, its growing complexity, and fundamental contestability. Yet that does not mean that defending the current regime is the optimal response. The complexity and dynamism of modern finance also undercut the efficacy of established administrative procedures. And the panoply of financial regulators with unclear and overlapping jurisdictional bounds only adds to the challenge. Both these procedural …

Financial Regulation Beyond Stability, Kathryn Judge

Faculty Scholarship

This essay briefly reviews the ways stability has dominated regulatory and academic discourse about financial regulation. It then uses anti-money laundering (AML) and the Federal Home Loan Banks (FHL Banks) — the oldest government foray into housing policy — as case studies to show that banks and the financial system are already deeply engaged in efforts to further other important government policies. These case studies affirm just how hard it can be to promote healthy public-private coordination, while also revealing why such arrangements have become so pervasive. More than anything, the aim here is to force acknowledgment of the myriad …

The Legal Innovation Sandbox, Cristie Ford, Quinn Ashkenazy

All Faculty Publications

"The Legal Innovation Sandbox" examines a novel regulatory approach, called the innovation sandbox, in the context of the legal profession. The paper makes the claim that the “sandbox” regulatory model is in fact better suited to fostering innovation in the legal services arena than it is in the financial technology, or fintech, arena in which the sandbox concept developed. However, any effort to transplant a technique from one context to another needs to be carefully considered. This article is comparative across disciplines – financial regulation and legal services regulation – and across jurisdictions – covering the United Kingdom, the United …

The Legal Innovation Sandbox, Cristie Ford, Quinn Ashkenazy

All Faculty Publications

"The Legal Innovation Sandbox" examines a novel regulatory approach, called the innovation sandbox, in the context of the legal profession. The paper makes the claim that the “sandbox” regulatory model is in fact better suited to fostering innovation in the legal services arena than it is in the financial technology, or fintech, arena in which the sandbox concept developed. However, any effort to transplant a technique from one context to another needs to be carefully considered. This article is comparative across disciplines – financial regulation and legal services regulation – and across jurisdictions – covering the United Kingdom, the United …

The Failure Of Market Efficiency, William Magnuson

Faculty Scholarship

Recent years have witnessed the near total triumph of market efficiency as a regulatory goal. Policymakers regularly proclaim their devotion to ensuring efficient capital markets. Courts use market efficiency as a guiding light for crafting legal doctrine. And scholars have explored in great depth the mechanisms of market efficiency and the role of law in promoting it. There is strong evidence that, at least on some metrics, our capital markets are indeed more efficient than they have ever been. But the pursuit of efficiency has come at a cost. By focusing our attention narrowly on economic efficiency concerns—such as competition, …

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

Articles

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.

Exploring The Assetisation And Financialisation Of Non-Fungible Tokens: Opportunities And Regulatory Implications, Iris H. Y. Chiu, J.G. Allen

Research Collection Yong Pung How School Of Law

This article explores the emerging phenomenon of use cases for Non-fungible Tokens (NFTs) in novel forms of crypto-finance, a stage we call “NFT financialisation”, that can be developed from stages of consumption and commoditisation of NFTs, which are increasingly observed. Despite the emerging contests regarding property rights conferred by NFTs, the needs for commoditisation and financialisation in NFT markets would likely shape the delineation and framing of such rights in order for users to exploit the asset potential of NFTs. We argue that an institutional response is timely and beneficial for NFT financialisation. Financial regulatory governance can provide the institutions …

Decentralized Finance: Implications Of The So-Called Disintermediation Of Financial Services, Nydia Remolina Leon

Research Collection Yong Pung How School Of Law

Decentralized Finance, known as DeFi, refers to the use of blockchain and digital assets or crypto-assets for the provision of financial services. Under this concept, services such as loans, insurance, crypto-asset exchanges, among others, are offered, are structured based on crypto-assets and through technologically decentralized applications. This chapter discusses the concept of DeFi and how it challenges the traditional market infrastructures of the financial sector, demystifying the idea of absolute decentralization, generally mentioned in the crypto-asset arena, from the perspective of decision-makers and governors of these decentralized applications. Subsequently, the chapter analyses the opportunities and challenges of DeFi for consumers, …

Fenceposts Without A Fence, Katherine Di Lucido, Nicholas Kean Tabor, Jeffery Zhang

Law & Economics Working Papers

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 …

Fraudulent Transactions In An Online World, Eunice Chua, Beverly Wee

Research Collection Yong Pung How School Of Law

This article considers the new normal of online payment transactions and the guidelines applicable to the situation of a fraudulent transaction. How effective are they at protecting consumers? Are there concerns that need to be addressed?

A Unified Theory Of Data, William Magnuson

Faculty Scholarship

How does the proliferation of data in our modern economy affect our legal system? Scholars that have addressed the question have nearly universally agreed that the dramatic increases in the amount of data available to companies, as well as the new uses to which that data is being put, raise fundamental problems for our regulatory structures. But just what those problems might be remains an area of deep disagreement. Some argue that the problem with data is that current uses lead to discriminatory results that harm minority groups. Some argue that the problem with data is that it impinges on …

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

Faculty Scholarship

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 …

The Promises And Perils Of Insurtech, Lin Lin, Christopher C. H. Chen

Research Collection Yong Pung How School Of Law

The insurance sector, in riding the wave of the FinTech phenomenon, has been rapidly expanding, with a slew of firms having emerged to provide so-called “InsurTech” services. These services incorporate concepts such as blockchain, artificial intelligence, digitalisation and the sharing economy to various aspects of the insurance industry. This profusion of technology brings with it the promise of various benefits including increasing efficiency and lowering costs for not only insurers and intermediaries, but also businesses or consumers as end-users of insurance. However, the development of InsurTech comes with corresponding risks and regulatory concerns not currently accounted for by the traditional …

Artificial Financial Intelligence, William Magnuson

Faculty Scholarship

Recent advances in the field of artificial intelligence have revived long-standing debates about what happens when robots become smarter than humans. Will they destroy us? Will they put us all out of work? Will they lead to a world of techno-savvy haves and techno-ignorant have-nots? These debates have found particular resonance in finance, where computers already play a dominant role. High-frequency traders, quant hedge funds, and robo-advisors all represent, to a greater or lesser degree, real-world instantiations of the impact that artificial intelligence is having on the field. This Article will argue that the primary danger of artificial intelligence in …

Commercial Law Intersections, Giuliano Castellano, Andrea Tosato

All Faculty Scholarship

Commercial law is not a single, monolithic entity. It has grown into a dense thicket of subject-specific branches that govern a broad range of transactions and corporate actions. When one of these events falls concurrently within the purview of two or more of these commercial law branches - such as corporate law, intellectual property law, secured transactions law, conduct and prudential regulation - an overlap materializes. We refer to this legal phenomenon as a commercial law intersection (CLI). Some notable examples of transactions that feature CLIs include bank loans secured by shares, supply chain financing arrangements, patent cross-licensing, and blockchain-based …

Global Challenges And Regulatory Strategies To Fintech, Aurelio Gurrea-Martinez, Nydia Remolina

Centre for AI & Data Governance

The rise of new technologies has changed the operation, regulation and supervision of financial markets, bringing new challenges and opportunities for consumers, regulators, and financial institutions. This Article seeks to explore the most common regulatory strategies used by financial regulators around the world to address the challenges associated with the rise of fintech. These strategies include the imposition of bans, regulatory passivity, adoption of new legislation, permission on a case by case basis, and more interactive approaches such as innovation offices, accelerators and sandboxes. This Article argues that the adoption and desirability of each regulatory approach will depend on a …

The New Gatekeepers: Private Firms As Public Enforcers, Rory Van Loo

Faculty Scholarship

The world’s largest businesses must routinely police other businesses. By public mandate, Facebook monitors app developers’ privacy safeguards, Citibank audits call centers for deceptive sales practices, and Exxon reviews offshore oil platforms’ environmental standards. Scholars have devoted significant attention to how policy makers deploy other private sector enforcers, such as certification bodies, accountants, lawyers, and other periphery “gatekeepers.” However, the literature has yet to explore the emerging regulatory conscription of large firms at the center of the economy. This Article examines the rise of the enforcer-firm through case studies of the industries that are home to the most valuable companies, …

The Regulation Of Equity Index Futures, Lin (Lynn) Bai

Faculty Articles and Other Publications

Equity index futures are one of the most actively traded derivative instruments in financial markets around the world. Advancements in trading and clearing technologies transformed the marketplace over the past two decades. Regulation drastically changed to keep pace with the market’s development. New rules have been implemented covering trading activities, risk management, market surveillance, and customer protection. Legal literature on the regulation of this important financial instrument is surprisingly antiquated. Existing papers were written decades ago and do not reflect the true metes and bounds of today’s regulatory landscape. This paper fills the void. It provides a comprehensive discussion of …

Debt In Just Societies: A General Framework For Regulating Credit, John Linarelli

Scholarly Works

Debt presents a dilemma to societies: successful societies benefit from a substantial infrastructure of consumer, commercial, corporate, and sovereign debt but debt can cause substantial private and social harm. Pre- and post-crisis solutions have seesawed between subsidizing and restricting debt, between leveraging and deleveraging. A consensus exists among governments and international financial institutions that financial stability is the fundamental normative principle underlying financial regulation. Financial stability, however, is insensitive to equality concerns and can produce morally impermissible aggregations in which the least advantaged in a society are made worse off. Solutions based only on financial stability can restrict debt without …

Eu Law In Populist Times: Crises And Prospects, Francesca Bignami

GW Law Faculty Publications & Other Works

EU Law in Populist Times: Crises and Prospects analyzes the sovereignty-sensitive EU law that has emerged over the past decade—in economic policy, human migration, internal security, and constitutional fundamentals (rule-of-law policies to combat democratic backsliding). These are legal areas at the heart of state sovereignty, over which the EU’s prerogatives accelerated following the multiple crises that hit beginning in 2009. They are also EU policies that occupy center stage in the acrimonious debates that have emerged between European establishment parties and populist political forces, precisely because of the huge economic, social, and constitutional stakes involved in reaching into core state …

A Tale Of Two Markets: Regulation And Innovation In Post-Crisis Mortgage And Structured Finance Markets, William W. Bratton, Adam J. Levitin

All Faculty Scholarship

This Article takes the occasion of the tenth anniversary of the financial crisis to review recent developments in the structured products market, connecting the emergent pattern to post-crisis regulation.

The Article tells a tale of two markets. The financial crisis stemmed from excessive risk-taking and shabby practice in the subprime home mortgage market, a market that owed its existence to the private-label, originate to securitize model. But the pre-crisis boom in private label subprime mortgage-backed securities could never have happened absent back up financing from an array of structured products and vehicles created in the capital markets—the CDOs that found …

Sustainable Tax Policy Through The Lens Of Intergenerational Justice, Neil H. Buchanan

UF Law Faculty Publications

As the papers in this issue demonstrate, the tax system, both domestically and internationally, can be used to help undo generations of damage to all aspects of society, allowing our children and grandchildren to inherit a society that is more just and prosperous than what we are living with today. This is what sustainable policy design requires.

Remutualization, Erik F. Gerding

Publications

Policymakers need to rediscover the organizational form of business entity as a tool of financial regulation. Recent and classic scholarship has produced evidence that financial institutions organized as alternative entity forms – including investment bank partnerships and banks and insurance companies organized as mutual or cooperatives – tend to take less risk, exploit customers/consumer less, or commit less misconduct compared to counterparts organized as investor-owned corporations. This article builds off the work of Hill and Painter on investment banks organized as partnerships, Hansmann on the history and economics of banks and insurance companies organized as mutuals and cooperatives, and other …

Why Financial Regulation Keeps Falling Short, Dan Awrey, Kathryn Judge

Faculty Scholarship

This article argues that there is a fundamental mismatch between the nature of finance and current approaches to financial regulation. Today’s financial system is a dynamic and complex ecosystem. For these and other reasons, policy makers and market actors regularly have only a fraction of the information that may be pertinent to decisions they are making. The processes governing financial regulation, however, implicitly assume a high degree of knowability, stability, and predictability. Through two case studies and other examples, this article examines how this mismatch undermines financial stability and other policy aims. This examination further reveals that the procedural rules …

The Covid-19 Pandemic And Business Law: A Series Of Posts From The Oxford Business Law Blog, Gert-Jan Boon, Markus K. Brunnermeier, Horst Eidenmueller, Luca Enriques, Aurelio Gurrea-Martínez, Kathryn Judge, Jean-Pierre Landau, Marco Pagano, Ricardo Reis, Kristin Van Zwieten

Faculty Scholarship

The COVID-19 Pandemic is the biggest challenge for the world since World War Two, warned UN Secretary General, António Guterres, on 1 April 2020. Millions of lives may be lost. The threat to our livelihoods is extreme as well. Job losses worldwide may exceed 25 million.

Legal systems are under extreme stress too. Contracts are disrupted, judicial services suspended, and insolvency procedures tested. Quarantine regulations threaten constitutional liberties. However, laws can also be a powerful tool to contain the effects of the pandemic on our lives and reduce its economic fallout. To achieve this goal, rules designed for normal times …

Financial Regulation In The (Receding) Shadow Of Antitrust, Samuel N. Weinstein

Articles

Mounting evidence that a number of key industries in the U.S. economy have become less competitive in recent years is prompting a renewed national conversation about an enhanced role for antitrust enforcement. But there are limits on the anticompetitive conduct antitrust enforcers and private plaintiffs can reach, especially in regulated markets. This is due in part to the doctrine of implied antitrust immunity: when a court perceives a conflict between the antitrust laws (e.g., the Sherman Act) and a regulatory regime (e.g., the securities laws), it may find immunity for conduct that otherwise would violate the antitrust laws. Two Supreme …

The Dark Side Of Implementing Basel Capital Requirements: Theory, Evidence, And Policy, Aurelio Gurrea-Martinez, Nydia Remolina

Research Collection Yong Pung How School Of Law

Most financial systems around the world have imposed new capital requirements for banks in the past years. This policy seems to be justified on two powerful economic grounds. First, better capitalized banks promote financial stability by reducing banks’ incentives to take risks and increasing banks’ buffers against losses. Second, lack of compliance with a set of rules established by the Basel Committee may harm confidence on a country’s financial system. While acknowledging these potential benefits, this paper makes the often overlooked point that the full implementation of Basel capital requirements may be socially undesirable for poorer countries seeking to develop …

The Impact Of The Durbin Amendment On Banks, Merchants, And Consumers, Vladimir Mukharlyamov, Natasha Sarin

All Faculty Scholarship

After the Great Recession, new regulatory interventions were introduced to protect consumers and reduce the costs of financial products. Some voiced concern that direct price regulation was unlikely to help consumers, because banks offset losses in one domain by increasing the prices that they charge consumers for other products. This paper studies this issue using the Durbin Amendment, which decreased the interchange fees that banks are allowed to charge merchants for processing debit transactions. Merchant interchange fees, previously averaging 2 percent of transaction value, were capped at $0.22, decreasing bank revenue by $6.5 billion annually. The objective of Durbin was …

Fintech And The Innovation Trilemma, Yesha Yadav, Chris Brummer

Vanderbilt Law School Faculty Publications

Whether in response to roboadvising, artificial intelligence, or crypto-currencies like Bitcoin, regulators around the world have made it a top policy priority to supervise the exponential growth of financial technology (or "fintech") in the post-Crisis era. However, applying traditional regulatory strategies to new technological ecosystems has proven conceptually difficult. Part of the challenge lies in the tradeoffs involved in regulating innovations that could conceivably both help and hurt consumers and market participants alike. Problems also arise from the common assumption that today's fintech is a mere continuation of the story of innovation that has shaped finance for centuries.

This Article …

Engineered Credit Default Swaps: Innovative Or Manipulative?, Gina-Gail S. Fletcher

Articles by Maurer Faculty

Credit default swaps (“CDS”) are, once again, making waves. Maligned for their role in the 2008 financial crisis and condemned by the Vatican, investors are once more utilizing CDS to achieve results of questionable market benefit. A CDS is a financial contract that allows investors to “bet” on whether a borrower will default on its loan. However, rather than waiting to see how their bets pan out, some CDS investors are collaborating with financially distressed borrowers to guarantee the profitability of their CDS positions—“engineering” the CDS’ outcome. Under the CDS contract, these collaborations are not prohibited, yet they have roiled …