Banking and Finance Law Commons^™

Credit Derivatives, Leverage, And Financial Regulation's Missing Macroeconomic Dimension, Erik F. Gerding

Publications

Of all OTC derivatives, credit derivatives pose particular concerns because of their ability to generate leverage that can increase liquidity - or the effective money supply - throughout the financial system. Credit derivatives and the leverage they create thus do much more than increase the fragility of financial institutions and increase counterparty risk. By increasing leverage and liquidity, credit derivatives can fuel rises in asset prices and even asset price bubbles. Rising asset prices can then mask mistakes in the pricing of credit derivatives and in assessments of overall leverage in the financial system. Furthermore, the use of credit derivatives …

Adaptive Regulation In The Amoral Bazaar, Lawrence G. Baxter

Faculty Scholarship

Twelfth Oliver Schreiner Memorial Lecture,delivered on 20 October 2010 at the School of Law, University of the Witwatersrand, Johannesburg, South Africa. Many gradual changes in science, law and society are crystallizing to shape a significant transformation in administrative law. The doctrinal framework within which Justice Schreiner himself attempted to modernize how law should regulate government and private economic activity seems from our vantage point to be quite antiquated. In explaining why, my examples will come from the world of financial services, but they could easily be found anywhere in the area of law and regulation. First I will outline the …

Armed And Dangerous: The Crime Of Mortgage Fraud And What Congress Must Do To Stop It, Gabriel Zitrin

Legislation and Policy Brief

Instead, it will simply argue that while the relevant monetary policymakers continue far too slowly in the pursuit of mortgage securities reform, lawmakers whose purview includes the housing sector should use this opportunity to pursue a two-part strategy of aggressively combating fraud in the terms and sales of individual mortgages and taking bold measures to ensure that not simply embattled mortgage-holders but the victims of fraudulent lending behavior can achieve financial sustainability, even as they keep ownership of their homes.

Public Financing's Last Breaths, Kellen Clemons

Legislation and Policy Brief

After this peculiar and unique election cycle, the public financing laws will have to be redeveloped in order to have any bearing on future elections. Without some change to the rules, candidates will continue to opt out and use the Internet and grassroots initiatives to out-raise one another, to the possible disadvantage of the goals of the public finance system. In essence, this election cycle has seen politics destroy the current public financing system. Through the advisory opinions of the Federal Election Commission and the decisions of the major candidates to opt out of public financing, the role of the …

How To Avoid The Constraints Of Rule 10b-5(B): A First Circuit Guide For Underwriters, 43 J. Marshall L. Rev. 931 (2010), Eric H. Franklin

UIC Law Review

No abstract provided.

Deregulation Pas De Deux: Dual Regulatory Classes Of Financial Institutions And The Path To Financial Crisis In Sweden And The United States, Erik F. Gerding

Publications

This article presents the following model of two regulatory classes of financial institutions interacting in financial and political markets to spur deregulation and riskier lending and investment, which in turn contributes to the severity of a financial crisis: 1) Regulation creates two categories of financial institutions. The first class faces greater restrictions in lending or investment activities but enjoys regulatory subsidies, such as an explicit or implicit government guarantee, while the second class is more loosely regulated and can make riskier loans or investments and earn additional profits. 2) These additional profits leads to calls for deregulation to enable the …

Leverhulme Lecture: The Global Financial Crisis And Systemic Risk, Steven L. Schwarcz

Faculty Scholarship

Lecture given November 9, 2010, is the first of three delivered by Prof. Schwarcz as Leverhulme Visiting Professor of Law, Oxford University. Prof. Schwarz examines the causes of the global financial crisis, showing it was triggered by market failures, not by financial institution failures, and arguing that any regulatory framework for managing systemic risk must address markets as well as institutions. The lecture also analyzes how regulation should be designed under that broader framework to mitigate systemic risk and its consequences. Finally, the lecture examines the potential systemic effects of sovereign debt crises, demonstrating how regulation can mitigate those effects.

Leverhulme Lecture: Regulating Complexity In Financial Markets, Steven L. Schwarcz

Faculty Scholarship

Lecture given November 9, 2010, the second of three delivered by Prof. Schwarcz as Leverhulme Visiting Professor of Law, Oxford University.

Complexity is the greatest challenge to 21st Century financial regulation, having the potential to impair markets and investments in several interrelated ways. Furthermore, complexity can cause failures that individual market participants cannot, or will not have incentive to, remedy. These failures are driven by information uncertainty, misalignment of interests and incentives among market participants, and nonlinear feedback and tight coupling that result in sudden unexpected market changes. These are the same types of failures that engineers have long faced …

Leverhulme Lecture: The Future Of Securitization, Steven L. Schwarcz

Faculty Scholarship

Lecture given November 11, 2010, the third of three delivered by Prof. Schwarcz as Leverhulme Visiting Professor of Law, Oxford University.

The securitization of subprime mortgage loans is widely viewed as a root cause of the financial crisis. This lecture balances the costs and benefits of securitization, focusing on what went wrong and on what needs to be fixed to curtail securitization’s abuses and make it viable again as an important financing tool. Finally, the lecture examines alternatives to securitization, focusing on covered bonds and comparing and contrasting covered bonds and securitization.

Ernst Freund, Felix Frankfurter And The American Rechtsstaat: A Transatlantic Shipwreck, 1894-1932, Daniel R. Ernst

Georgetown Law Faculty Publications and Other Works

From the passage of the Interstate Commerce Act of 1887 through the New Deal, American legislators commonly endowed administrative agencies with broad discretionary power. They did so over the objections of an intellectual founder of the American administrative state. The American-born, German-educated lawyer and political scientist Ernst Freund developed an Americanized version of the Rechtsstaat—a government bound by fixed and definite rules—in an impressive body of scholarship between 1894 and 1915. In 1920 he eagerly took up an offer from the Commonwealth Fund to finance a comprehensive study of administration in the United States. Here was his chance to show …

Vebas To The Rescue: Evaluating One Alternative For Public Sector Retiree Health Benefits, 42 J. Marshall L. Rev. 879 (2009), Susan E. Cancelosi

UIC Law Review

No abstract provided.

Private Standards, Public Governance: A New Look At The Financial Accounting Standards Board, William W. Bratton

Georgetown Law Faculty Publications and Other Works

The Financial Accounting Standards Board (the "FASB") presents a puzzle: How has this private standard setter managed simultaneously (1) to remain independent, (2) to achieve institutional stability and legitimacy, and (3) to operate in a politicized context in the teeth of opposition from its own constituents? This Article looks to governance design to account for this institutional success. The FASB's founders made a strategic choice to create a regulatory agency that sought independence rather than political responsiveness. The FASB also set out a coherent theory of accounting, the "Conceptual Framework," to contain and direct its decisions. The Conceptual Framework contributed …

Nsf Fees, James J. White

Articles

Overdraft fees now make up more than half of banks' earnings on consumer checking accounts. In the past century, overdrafts have gone from the banker's scourge to the banker's profit center as bankers have learned that there is much to be made on these short term loans at breathtaking interest rates. I note that the federal agencies have been complicit in the growth of this form of lending. I propose that the banks and the agencies recognize the reality and attempt to mitigate these rates by encouraging the development of a competitive market.

Analyzing The World Bank's Blueprint For Promoting "Information And Communications", Sherille Ismail

Federal Communications Law Journal

Book Review: Information and Communications for Development 2006: Global Trends and Policies, issued by the World Bank.

This Review provides a summary and brief analysis of foreign private investment, the book's blueprint for reform, and how investments have fared in promoting economic growth and reducing poverty. The book is a valuable asset for governments, scholars, investors, and the international community seeking to serve end users in developing countries.

A Complete Property Right Amendment, John H. Ryskamp

ExpressO

The trend of the eminent domain reform and "Kelo plus" initiatives is toward a comprehensive Constitutional property right incorporating the elements of level of review, nature of government action, and extent of compensation. This article contains a draft amendment which reflects these concerns.

Bond Repudiation, Tax Codes, The Appropriations Process And Restitution Post-Eminent Domain Reform, John H. Ryskamp

ExpressO

This brief comment suggests where the anti-eminent domain movement might be heading next.

Self-Regulation For Safety And Security: Final Minutes Or Finest Hour?, Douglas C. Michael

Law Faculty Scholarly Articles

The terrorist attacks of September 11, 2001, and the accounting and auditing crisis later caused by the Enron and Worldcom scandals of that same year, created a great sense of insecurity in many Americans. In this Article, I analyze the federal government's response to crisis. I first define what a crisis is: a sudden, existential threat to which the entity has insufficient resources to respond. I then explain how regulation for safety and security is unique in two aspects: perceptions matter, and the assistance of the regulated entities is essential. I proceed by describing and analyzing the regulatory history and …

What's Your Sign? -- International Norms, Signals, And Compliance, Charles K. Whitehead

Michigan Journal of International Law

This Article proposes a new approach to understanding state compliance with international obligations, positing that increased interaction among the world's regulators has reinforced network norms, as evidenced in part by a greater reliance among states on legally nonbinding instruments. This Article also begins to fill a gap in the growing scholarship on state compliance by proposing a better framework for understanding how international norms influence senior regulators and how they affect both state decisions to comply as well as levels of compliance.

Global Administrative Law: The View From Basel, Michael S. Barr, Geoffrey P. Miller

Articles

International law-making by sub-national actors and regulatory networks of bureaucrats has come under attack as lacking in accountability and legitimacy. Global administrative law is emerging as an approach to understanding what international organizations and national governments do, or ought to do, to respond to the perceived democracy deficit in international law-making. This article examines the Basel Committee on Banking Supervision, a club of central bankers who meet to develop international banking capital standards and to develop supervisory guidance. The Basel Committee embodies many of the attributes that critics of international law-making lament. A closer examination, however, reveals a structure of …

Taking The Stand: The Lessons Of The Three Men Who Took The Japanese American Internment To Court, Lorraine K. Bannai

Seattle Journal for Social Justice

No abstract provided.

Breaking The Bank: Revisiting Central Bank Of Denver After Enron And Sarbanes-Oxley, Celia Taylor

ExpressO

No abstract provided.

Rethinking Regulatory Democracy, Mariano-Florentino Cuellar

ExpressO

This article empirically examines democratic participation in three different regulatory proceedings, involving financial privacy, nuclear regulation, and campaign finance. It then uses that analysis to critique -- and suggest alternatives to -- existing mechanisms to achieve public participation in the regulatory state. The current mechanism for structuring public participation in regulatory decisions (or “regulatory democracy”) relies on demand-driven procedures like the Administrative Procedure Act’s notice and comment process. Organized interests and others who decide they have sufficient resources and interest to do so comment on regulations. While some observers consider this process close to ideal, others instead seem to accept …

Expensing Isn't The Only Option: Alternatives To The Fasb's Stock Option Expensing Proposal, Benjamin A. Templin

ExpressO

This paper reviews the arguments for and against the Financial Accounting Standard Board's (FASB) proposal to require that corporations expense options. It identifies two major goals of the proposed rule -- 1) clarity in financial statements and 2) a reduction of corporate fraud by removing the incentive of options. To address these two goals, I adopt a framework of Information Reforms v. Rules of the Game Reforms. The article starts with a history of FASB Statement No. 123 Accounting for Stock-based Compensation and also analyzes the Congressional legislation that attempts to block the measure, the Stock Option Accounting Reform Act. …

Reconsidering The Prohibition Against General Solicitation During Section 3(C)(7) Offerings, Daniel P. Taub

ExpressO

This paper examines the seventy year history of the general solicitation prohibition during private offerings and then analyzes its continuing relevance as applied to Section 3(c)(7) offerings. The S.E.C. Staff recently issued a report questioning the continuing value of prohibiting general solicitation during private offerings made pursuant to Section 3(c)(7) of the Investment Company Act. If the S.E.C. were to follow the recommendation in the S.E.C. Staff Report, this would have tremendous implications for a growing number of hedge funds, and other investment companies utilizing the Section 3(c)(7) exemption. By allowing general solicitation, the S.E.C. would be reversing a policy …

Valuation Averaging: A New Procedure For Resolving Valuation Disputes, Keith Sharfman

Rutgers Law School (Newark) Faculty Papers

In this Article, Professor Sharfman addresses the problem of "discretionary valuation": that courts resolve valuation disputes arbitrarily and unpredictably, thus harming litigants and society. As a solution, he proposes the enactment of "valuation averaging," a new procedure for resolving valuation disputes modeled on the algorithmic valuation processes often agreed to by sophisticated private firms in advance of any dispute. He argues that by replacing the discretion of judges and juries with a mechanical valuation process, valuation averaging would cause litigants to introduce more plausible and conciliatory valuations into evidence and thereby reduce the cost of valuation litigation and increase the …

The Changing Nature Of Federal Regulation - Dedications, Joel Seligman

Scholarship@WashULaw

In 1911 the failure of state corporation statutes to prevent securities fraud gave rise to the first significant legislative response when Kansas enacted the first well known state securities law. The law was popularly known as a “blue sky” law, because its intention was to check stock swindlers so barefaced that they “would sell building lots in the blue sky.”

After the U.S. Supreme court held that the blue sky law was constitutional in 1917, the blue sky movement swept the country. By 1933 every state except Nevada had a state securities law in effect.

Commodities Rulings Appealable To Circuit (New York Law Journal), Daniel Wise

News Articles

No abstract provided.

Tough Love In The District: Management Reform Under The District Of Columbia Financial Responsibility And Management Assistance Act , Stephen R. Cook

American University Law Review

No abstract provided.

Regulating Risk Not Function, Heidi Mandanis Schooner

Scholarly Articles

This Article examines our current scheme of bank regulation through an analysis of banks' securities activities -- how such activities are currently regulated and how they might be regulated in the future.

Part I summarizes the major restrictions on banks' securities activities, emphasizing recent regulatory initiatives aimed toward expanding banks' participation in the securities business.

Part II examines the application of the federal securities laws to banks' securities activities. (While banks enjoy some exemptions from the federal securities laws, they are subject to many of the most important provisions.) In addition, Part II sets forth the division of responsibility for …

Shareholder Enforced Market Discipline: How Much Is Too Much?, Eric J. Gouvin

Faculty Scholarship

This Article considers the federal banking regulation regime implemented in response to the widespread bank failures of the 1980s and early 1990s. The first section of the Article examines the moral hazard problem created by the presence of the deposit insurance scheme and the market discipline debate that has attempted to correct the moral hazard problem. The Author argues that the law has evolved to make bank holding companies the primary enforcers of market discipline. The Article’s second section examines the specific regulatory changes that have been designed to create an incentive for bank holding companies to impose discipline on …