Law Commons^™

Credit Rating Agencies (Cras) And European Regulation, Marco Lamandini

Marco Lamandini

Financial Services Panel Economic and Monetary Affairs Committee MARCO LAMANDINI Full Professor of Securities and Company Law University of Bologna Credit Rating Agencies (CRAs) and European Regulation Bologna-Brussels, 28 December 2008 Executive summary The Committee requested an opinion on CRA. This briefing paper endeavours to offer a view on this issue, whose relevance for the proper functioning of financial markets emerged already in the wake of the Enron scandal but has been dramatically high-lightened by the current financial crisis. Paragraph 1 provides a brief overview of the European proposal for a regulation on CRAs against the backdrop of recognized market …

Crd And Liquidity, Marco Lamandini

Marco Lamandini

The Committee has requested an opinion on CRD and liquidity. This briefing paper is intended to offer a view on this issue, the relevance of which for the sound management and prudential supervision of banks has been clearly highlighted by the current financial crisis. Paragraph 1 provides for a brief overview of the CRD proposed amendments concerning liquidity risk management and supervision. Paragraph 2 briefly discusses these proposed amendments and CEBS’s recommendations on liquidity risk management. Paragraph 3 considers liquidity risk management in a banking group perspective, calling for some additional regulatory efforts to address the problem of “liquidity trap” …

Discovering The Role Of The Firm: The Separation Criterion And Corporate Law, Daniel F. Spulber

Daniel F Spulber

Professor Daniel F. Spulber presents a theory of the firm based on the ability to separate the objectives of the firm from those of its owners. He introduces a separation criterion which defines a firm as a transaction institution such that the consumption objectives of the institution’s owners can be separated from the objectives of the institution itself. The separation criterion provides a bright line distinction between firms and other types of transaction institutions. Firms under this criterion include profit-maximizing sole proprietorships, corporations, and limited-liability partnerships. Institutions that are not classified as firms include contracts, clubs, workers’ cooperatives, buyers’ cooperatives, …

Sovereign Funds: Opportunities And Concerns, Myriam Kairouz Aucar

Myriam Kairouz Aucar

Sovereign funds are not a new notion. But they are attracting so much attention now because of their size, their rapid growth having quadrupled in size between 2003 and 2007 , and because they are investing in the US financial market institutions. This paper will explain the Sovereign Wealth Funds, address the concerns they raise as well as their importance, and try to get a view of how to balance the need for these funds with the dangers they represent. The paper also discusses some protective measures that have been emplemeted as well as some suggested protective measures.

When The Corporate Luminary Becomes Seriously Ill: When Is A Corporation Obligated To Disclose That Illness And Should The Securities And Exchange Commission Adopt A Rule Requiring Disclosure?, Allan Horwich

Allan Horwich

WHEN THE CORPORATE LUMINARY BECOMES SERIOUSLY ILL: WHEN IS A CORPORATION OBLIGATED TO DISCLOSE THAT ILLNESS AND SHOULD THE SECURITIES AND EXCHANGE COMMISSION ADOPT A RULE REQUIRING DISCLOSURE? By Allan Horwich* ABSTRACT Recent speculation and rumors about the health of senior corporate executives of public companies (most notably Steve Jobs of Apple Inc.) and the advanced age of many leaders in the corporate community prompt a consideration of when, if at all, there must be public disclosure of the ill health of a person whose involvement in a corporation is perceived as vital to the continued financial success or independence …

The Nonpecuniary Costs Of Sarbanes Oxley, Nicholas V. Vakkur

Nicholas v Vakkur

Sarbanes Oxley is widely considered the most comprehensive economic regulation since the New Deal. While research has evaluated its financial costs, relatively little is known about the non-financial impact of the law upon firms. We develop six hypotheses regarding the non-financial impact of Sarbanes Oxley, incorporating learning from a comprehensive literature review across multiple disciplines. To evaluate this theory, an original survey was developed and implemented on a random sample of Fortune 500 firms (n = 206). An ordered probit model was used to quantify the results. While many economists consider business surveys to be at least as important as …

Governance And Accountability: The Regional Development Banks, Enrique R. Carrasco, Heejin Lee, Wesley Carrington

Enrique R Carrasco

Good governance has become a mantra of the movement seeking to make multilateral financial institutions more accountable to their stakeholders while improving institutional governance. Although much of the visible criticism has been directed at the World Bank and International Monetary Fund, the “regional” development banks share many of the same governance and accountability problems. Important issues relating to governance and accountability include the banks’ heavily unequal voting power based on capital contributions, limited transparency and disclosure requirements, questionable efficacy of monitoring programs on the impact of the banks’ projects, and limited scope of the banks’ private complaint mechanisms. This Article …

A Troubled House Of Cards: Examining How The “Housing And Economic Recovery Act Of 2008” Fails To Resolve The Foreclosure Crisis, Chad Emerson

Chad Emerson

No abstract provided.

Changing The Paradigm Of Stock Ownership From Concentrated Towards Dispersed Ownership? Evidence From Brazil And Consequences For Emerging Countries, Erica Gorga

Cornell Law Faculty Working Papers

This paper analyzes micro-level dynamics of changes in ownership structures. It investigates a unique event: changes in ownership patterns currently taking place in Brazil. It builds upon empirical evidence to advance theoretical understanding of how and why concentrated ownership structures can change towards dispersed ownership.

Commentators argue that the Brazilian capital markets are finally taking off. The number of listed companies and IPOs in the Sao Paulo Stock Exchange (Bovespa) has greatly increased. Firms are migrating to Bovespa’s special listing segments, which require higher standards of corporate governance. Companies have sold control in the market, and the stock market has …

What Community Action For Micro-Credit?, Marco Lamandini

Marco Lamandini

The Committee requested an opinion on which aspects of micro-credit could be regulated at European level. This briefing paper endeavours to answer to this complex question and is organized as follows. Paragraph 2 provides a brief overview of the development of micro-credit and microfinance within and outside Europe and shows its current and expected impact on the economy. Paragraph 3 describes the Commission’s action plan. Paragraph 4 offers some recommendations on how to possibly fine-tune the proposed EU action plan distinguishing between banks and non-banks MFIs.

The New Basel Accord: Taking Cues From The Asian Financial Crisis, Megha Sharma

Megha Sharma

In complex financial relations, banks have a crucial role to play. They are the promoters of growth and they contribute in strengthening economies. For the same reason, considerable emphasis is laid on ensuring that banks do not default. Banks are the custodians of savings and generator of funds. At the international front, a crucial initiative in this direction was taken by the Basel Committee on Banking Supervision. The Basel Committee has come out with two Accords till date, namely, the International Convergence of Capital Measurement and Capital Standards, released in 1988 and International Convergence of Capital Measurement and Capital Standards, …

Stripping Down The Subprime Crisis, Whitney R. Travis

Whitney R Travis

In Nobelman v. American Savings Bank, the Supreme Court held that a literal reading of the Bankruptcy Code disallowed a Chapter 13 debtor from modifying the rights of a mortgage lender’s claim, secured by a primary residence. The decision thereby required a Chapter 13 debtor to pay the entire amount of the mortgage lender’s claim in order to retain possession of his home. Considering the debtor can modify the rights of nearly every other creditor in bankruptcy, one might wonder why mortgage lenders hold such an elite status. In his concurring opinion, Justice Stevens stated:

At first blush it seems …

The Role Of Private Sector Investment In International Microfinance And The Implications Of Domestic Regulatory Environments, William A. Langer

William A Langer

The Role of Private Sector Investment in International Microfinance and the Implications of Domestic Regulatory Environments

By William Langer

Microfinance – the practice of providing small, working capital loans and other financial services to poor individuals unable to obtain access to commercial sources of credit – has been able to transform the lives of over 100 million microentrepreneurs and their families in various regions throughout the world. Despite this impressive achievement, microfinance currently reaches only 10% of the estimated demand for microfinance services, comprised of approximately 1 to 1.5 billion self-employed poor persons worldwide. Practitioners agree that in order to …

Rolling Equilibriums At The Pre-Commons Frontier: Identifying Patently Efficient Royalties For Complex Products, F. Russell Denton

F. Russell Denton

Patent pricing problems have roiled industry in recent years. The biggest challenge may be splintered in-licensing of dozens or even thousands of patents for a single behemoth product, where ubiquitous overlaps in invention utility frustrate rational splitting of royalties. That issue is especially daunting for software, computer chips and biotechnology. Judicial remedies are no better: courts have been unable to streamline or standardize the analysis for infringement dam-ages under the prevailing Georgia-Pacific rule. The historic weakness of financial science for intangible assets, along with cherry picking by parties, hobbles G-P’s 15-factor analysis. The universal fog in allocating royalties creates license …

Statistical String Theory For Courts: If The Data Don't Fit..., David F. Babbel

David F Babbel

The primary purpose of this article is to provide courts with an important new tool for applying the correct probability distribution to a given legal question. This tool is path-breaking and will have an extensive impact on how a wide variety of cases are decided. In areas as diverse as criminal prosecutions and civil lawsuits alleging securities fraud, courts must assess the relevance and reliability of statistical data and the inferences drawn therefrom. But, courts and expert witnesses often make mistaken assumptions about what probability distributions are appropriate for their analyses. Using the wrong probability distribution can lead to invalid …

Deeply And Persistently Conflicted: Credit Rating Agencies In The Current Regulatory Environment, Timothy E. Lynch

Timothy E. Lynch

Credit rating agencies have a pervasive and potentially devastating influence on the financial well-being of the public. Yet, despite the recent passage of the Credit Rating Agency Reform Act, credit rating agencies enjoy a relative lack of regulatory oversight. One explanation for this lack of oversight has been the appeal of the potentially self-regulating nature of credit rating agencies that claim to rely deeply on their reputational standing within the financial world. There are strong arguments for doubting this reputational concern, including the conflicting self-interest of credit rating agencies whose profits are gained or lost depending on their ability to …

Complexity As A Catalyst Of Market Failure: A Law And Engineering Inquiry, Steven L. Schwarcz

Steven L Schwarcz

This article examines how the complexities of modern investment securities and the assets underlying them can trigger a breakdown of financial markets and also analyzes what should be done to mitigate the potential for market failure. Because these complexities are characteristic of complexities in nonlinear engineering systems, the article’s analysis draws on the literature analyzing these systems.

Recognizing The “Bad Barrel” In Public Business Firms: Social And Organizational Factors In Misconduct By Senior Decision-Makers, James A. Fanto

James A. Fanto

The Article argues that laws dealing with business associations do not adequately address the group and organizational factors in misconduct by senior decision-makers of public firms. The law essentially adopts a “bad apple,” rather than a “bad barrel,” perspective: it considers senior-level misconduct to be essentially an individual matter, and group or organizational causes or factors to be insignificant in it. The Article contends that this approach contradicts the learning of those who study groups and organizations, social psychologists and organizational theorists. Since senior-level misconduct is often attributable to group and organizational factors, a response that focuses only upon punishing …

Complexity As A Catalyst Of Market Failure: A Law And Engineering Inquiry, Steven L. Schwarcz

Steven L Schwarcz

This article examines how the complexities of modern investment securities and the assets underlying them can trigger a breakdown of financial markets and also analyzes what should be done to mitigate the potential for market failure. Because these complexities are characteristic of complexities in nonlinear engineering systems, the article’s analysis draws on the literature analyzing these systems.

Is Arbitration Under Attack? Exploring The Recent Judicial Skepticism Of The Class Arbitration Waiver And Innovative Solutions To The Unsettled Legal Landscape, Ramona L. Lampley

Ramona L. Lampley

This article explores the hotly debated field of enforcing arbitration clauses with binding class-action waivers. While the enforcement of arbitration clauses generally, and those with class-action waivers specifically, has undergone much debate in the past three years in both the academic and judicial fora; this article casts a new look on the analysis. Instead of advocating simply for or against the enforcement of the class-action waiver, this article analyzes the dialogue between the consumer products industry and the consuming public, via the court system. This dialogue has resulted in a “new wave” of consumer products arbitration agreements: agreements that are …

Complexity As A Catalyst Of Market Failure: A Law And Engineering Inquiry, Steven L. Schwarcz

Steven L Schwarcz

This article examines how the complexities of modern investment securities and the assets underlying them can trigger a breakdown of financial markets and also analyzes what should be done to mitigate the potential for market failure. Because these complexities are characteristic of complexities in nonlinear engineering systems, the article’s analysis draws on the literature analyzing these systems.

The Reverse-Robin-Hood-Cross-Subsidy Hypothesis: Do Credit Card Systems Effectively Tax The Poor And Reward The Rich?, Steven Semeraro

Steven Semeraro

Robin Hood and his band of merry men infamously, if apocryphally, robbed from the rich and gave to the poor. Over the last decade, some economists have postulated that credit card companies do the opposite – forcing low-income cash customers to pay higher prices for retail goods that effectively fund the frequent flier miles and other rewards that go predominantly to affluent cardholders. Because the credit card systems prohibit surcharging, everyone pays the same price. But, these analysts reason, merchants inflate their prices across the board to cover the cost of credit card acceptance. While credit card customers are rewarded …

Behavioral Public Finance, Edward J. Mccaffery

Edward J McCaffery

These are slides from a presentation to the Gruter Institute for Law and Behavioral Research, Squaw Valley Conference, May, 2008 (at which event Michael Jensen got me to agree to post these slides as a pdf on SSRN . . . ). The task is to give an overview of what I hope to be an emerging field of behavioral public finance. Behavioral finance, as per Barberis and Thaler 2003 (and others), consists of two parts: (1) individual level heuristics and biases, which can lead to sub-optimal (inconsistent) judgment and decision-making, and (2) institutional arbitrage mechanisms. In private finance and …

Comments On Liebman And Zeckhauser, Simple Humans, Complex Insurance, Subtle Subsidies, Edward J. Mccaffery

Edward J McCaffery

These are brief comments on an excellent paper by Jeffrey Liebman and Richard Zeckhauser, prepared for a conference sponsored by the Urban Institute and Brookings on tax and health care policy. Liebman and Zeckhauser summarize the complexities involved in making optimal health insurance decisions, and offer generally cautionary notes about conflating these with tax law (a theme of the conference). Most importantly, Liebman and Zeckhauser suggest a positive role for employers in health care and insurance decisions, as better setters or framers of choice sets—witness 401(k) plans. In this Commentary, I applaud Leibman and Zeckhauser’s general work and particular observation, …

The Effect Of 2005 Bankruptcy Reform On Credit Card Industry Profits And Prices, Michael N. Simkovic

Michael N Simkovic

The U.S. Bankruptcy code changed dramatically with the passage of The Bankruptcy Abuse Prevention and Consumer Protection Act Of 2005. This act increased the costs and decreased the benefits of bankruptcy to consumers. Supporters of the law claimed that it would benefit consumers as well as creditors, because reducing the losses faced by creditors would lower the cost of credit to consumers. Critics of the law depicted it as special interest legislation designed to profit credit card companies at the expense of consumers. This study tests whether the 2005 Bankruptcy Reform: (1) reduced the number of bankruptcies; (2) reduced credit …

Intellectual Property And Information Technology Due Diligence In Merger And Acquisition Transactions, Martin B. Robins

Martin B. Robins

this article addresses both the theoretical and practical elements of M&A due diligence regarding IP and IT, with an emphasis on recent developments.

Intellectual Property And Information Technology Due Diligence In Merger And Acquisition Transactions, Martin B. Robins

Martin B. Robins

No abstract provided.

Intellectual Property And Information Technology Due Diligence In Merger And Acquisition Transactions, Martin B. Robins

Martin B. Robins

This article is intended to address both the theoretical and practical elements of M&A due diligence associated with intellectual property and information technology issues.

At The Intersection Of Property And Insolvency: The Insolvent Company's Encumbered Assets, Riz Mokal

Riz Mokal

This is the working paper for an invited article published in (2008) 20(2) Singapore Academy of Law Journal 495.

When a company becomes subject to winding-up proceedings, it is widely thought to lose beneficial ownership of its property. The property is held, instead, on a ‘statutory trust’ to discharge the company’s liabilities. The attribution of this ‘proprietary’ effect to the commencement of winding-up has, however, created significant confusion. Faring particularly poorly is our understanding of the status of those of the company’s assets in which others held proprietary rights prior to this point, notably, assets the company’s title to which …

The False Panacea Of International Agreements For The U.S. Regulation Of Sovereign Wealth Funds, David A. Hall

David A. Hall

Sovereign Wealth Funds (“SWFs”) create special problems for regulators concerned with protecting investors in the United States. Namely they are opaque investment vehicles investing the foreign reserves of another nation. This differentiates them from other opaque investment vehicles like hedge funds because while a hedge fund can be counted on to try to maximize returns (thanks to the discipline of the market), the same cannot necessarily be said of SWFs. A regulator seeking to get a more transparent understanding of a SWF's motives needs mechanisms to regulate SWF activities. The current legal tools provided by international agreements that are available …