Law Commons^™

The Fsa, Integrated Regulation, And The Curious Case Of Otc Derivatives, Dan Awrey

Cornell Law Faculty Publications

With a view to better understanding the optimal structure of financial regulation, this paper tests prevailing theoretical hypotheses respecting the efficiency and overall desirability of integrated financial regulation relative to competing institutional models. This test is conducted through the lens of a comparative case study examining the approaches adopted by (fragmented) U.S financial regulators and the (integrated) UK Financial Services Authority (FSA) toward the myriad of regulatory challenges posed by the emergence, growth, and systemic importance of over-the-counter (OTC) derivatives markets. More specifically, this paper examines why, despite the numerous theoretical advantages of integrated regulation, the FSA adopted a non-interventionist …

Is It Greek Or Déjà Vu All Over Again?: Neoliberalism, And Winners And Losers Of International Debt Crises, Tayyab Mahmud

Tayyab Mahmud

The global financial meltdown and the Great Recession of 2007-09 have brought into sharp relief the uneven distribution of gain and pain in economic crises. The 2009-10 debt crisis of Greece has resulted in a windfall for financial institutions at the expense of tax-payers, a rollback of welfare systems, and impoverishment of the working classes. This result is in tune with a pattern evidenced by the ubiquitous international debt crises of the last three decades, including the Latin American crisis of the 1980s, and the Asian crisis of 1990s. The recurrent international debt crises of the last three decades and …

Regulating The Invisible: The Case Of Over-The-Counter Derivatives, Colleen M. Baker

Journal Articles

In this Article, I focus on the regulation of the over-the-counter (OTC) derivative markets. I argue that current reform proposals and draft legislation fall short of constructing the linked domestic and international frameworks needed to successfully regulate the OTC derivative markets. The purpose of my Article is to propose and defend such a framework. Because of the inseparability of the domestic and international aspects of this issue, I argue that in addition to increased prudential supervision and regulation, the regulation of OTC derivative markets requires interwoven domestic and international systems for regulatory cooperation. This recommendation has two parts. First, Congress …

Otc Derivatives Trading Under The Financial Reform Bill: Is It Tough Enough?, Willa E. Gibson

Willa E Gibson

This paper discusses the regulatory framework devised by Congress to govern trading in OTC derivatives products with a goal toward assessing the efficiency of the legislation to prevent systemic loss in the financial markets from derivatives trading. Both the U.S. House of Representatives and the U.S. Senate have drafted financial reform legislation prompted by the financial market failings the country experienced in 2008. Both versions provide for comprehensive regulation of the OTC derivatives products, which were used extensively by those financial institutions that lost millions of dollars from investments in mortgage securities to insure against subprime mortgage defaults. This paper …

How "Big" Became Bad: America's Underage Fling With Universal Banks, Lawrence G. Baxter

Lawrence G. Baxter

In little more than a decade gigantic new financial institutions have emerged in America. These organizations are quite different from their predecessors in that they share the highly complex, diversified characteristics of foreign “universal banks.” They are still in the process of developing experienced and mature operational and risk management systems. During this same period, the regulatory framework necessary to match the size, power and hazards generated by these new universal banks remains underdeveloped, and the primary framework around which the system is being constructed, namely Basel II, lies in tatters in the wake of the financial crisis of 2007-08. …

Trust And The Reform Of Securities Regulation, Ronald J. Colombo

Ronald J Colombo

Trust is a critically important ingredient in the recipes for a successful economy and a well-functioning securities market. Due to scandals, ranging in nature from massive incompetence, to massive irresponsibility, to massive fraud, investor trust is in shorter supply today than in years past. This is troubling, and commentators, policy makers, and industry leaders have all recognized the need for trust's restoration.

As in times of similar crises, many have turned to law and regulation for the answers to our problems. The imposition of additional regulatory oversight, safeguards, and remedies, some advocate, can help resuscitate investor trust. These advocates have …

Reframing Financial Regulation, Charles K. Whitehead

Cornell Law Faculty Publications

Financial regulation today is largely framed by traditional business categories. The financial markets, however, have begun to bypass those categories, principally over the last thirty years. Chief among the changes has been convergence in the products and services offered by traditional intermediaries and new market entrants, as well as a shift in capital-raising and risk-bearing from traditional intermediation to the capital markets. The result has been the reintroduction of old problems addressed by (but now beyond the reach of) current regulation, and the rise of new problems that reflect change in how capital and financial risk can now be managed …

Trust And The Reform Of Securities Regulation, Ronald J. Colombo

Ronald J Colombo

Trust is a critically important ingredient in the recipes for a successful economy and a well-functioning securities market. Due to scandals, ranging in nature from massive incompetence, to massive irresponsibility, to massive fraud, investor trust is in shorter supply today than in years past. This is troubling, and commentators, policy makers, and industry leaders have all recognized the need for trust's restoration.

As in times of similar crises, many have turned to law and regulation for the answers to our problems. The imposition of additional regulatory oversight, safeguards, and remedies, some advocate, can help resuscitate investor trust. These advocates have …

New Governance In The Teeth Of Human Frailty: Lessons From Financial Regulation, Cristie L. Ford

Cristie L. Ford

New Governance scholarship has made important theoretical and practical contributions to a broad range of regulatory arenas, including securities and financial markets regulation. In the wake of the global financial crisis, question about the scope of possibilities for this scholarship are more pressing than ever. Is new governance a full-blown alternative to existing legal structures, or is it a useful complement? Are there essential preconditions to making it work, or can a new governance strategy improve any decision making structure? If there are essential preconditions, what are they? Is new governance “modular” – that is, does it still confer benefits …

Guilty By Association? Regulating Credit Default Swaps, Houman B. Shadab

Articles & Chapters

A wide range of U.S. policymakers initiated a series of actions in 2008 and 2009 to bring greater regulation and oversight to credit default swaps (CDSs) and other over-the-counter derivatives. The policymakers’ stated motivations echoed widely expressed criticisms of the regulation, characteristics, and practices of the CDS market, and focused on the risks of the instruments and the lack of public transparency over their utilization and execution. Certainly, the misuse of certain CDSs enabled mortgage-related security risk to become overconcentrated in some financial institutions.

Yet as the analysis in this Article suggests, failing to distinguish between CDS derivatives and the …

Counterparty Regulation And Its Limits: The Evolution Of The Credit Default Swaps Market, Houman B. Shadab

Articles & Chapters

Over-the-counter (OTC) derivatives are widely regarded as “unregulated” financial instruments. While it is true that OTC derivatives are subject to relatively minimal federal regulation, OTC derivatives are in fact subject to a robust form of control and governance in the form of counterparty regulation. Counterparty regulation arises when two or more parties are continually exposed to counterparty credit risk for the duration of a long-term contract, and it consists of specific governance mechanisms such as the daily adjustment of collateral and the netting out of redundant trades. Counterparty regulation governs derivatives transactions but not securities transactions.

This essay reviews recent …

Introduction: The Market Meltdown Of 2008 And The Future Of Financial Reregulation [Article], Faith Stevelman

Articles & Chapters

No abstract provided.