Banking and Finance Law Commons^™

International Investment And National Security Review, Ji Ma

Vanderbilt Journal of Transnational Law

National security is a pillar of international law. As long as sovereign states exert power within the international legal regime, national security will be an exception to international law. These security concerns also come to light in the international investment legal regime. The international investment legal regime provides for essential security exceptions, aiming at protecting host states' interests. This practice has been honored by international investment treaties and international investment tribunals. Although such exemption provisions can balance the interests between international investors and host states, they might be abused by host states in virtue of rising protectionism.

Today, with respect …

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 …

Too-Big-To-Fail Shareholders, Yesha Yadav

Vanderbilt Law School Faculty Publications

To build resilience within the financial system, post-Crisis regulation relies heavily on banks to fund themselves more fully by issuing equity. This reserve of value should buttress failing banks by providing a mechanism to pay off creditors and depositors and preserve the health of financial markets. In the process, shareholders are wiped out. Scholars and policymakers, however, have neglected to examine which equity investors, in fact, are purchasing bank equity and taking on the default risk of U.S. banks. This Article addresses this question. First, it shows that five asset managers - BlackRock, Vanguard, State Street Global Advisors, Fidelity and …

Regulating Fintech, William Magnuson, William J. Magnuson

Vanderbilt Law Review

The global financial crisis of 2008 ushered in the most sweeping reform of financial regulation in the United States since the New Deal. Alarmed by the systemic risk that financial institutions posed to the broader economy, as well as perceived abuses engendered by the "too big to fail" mindset among banking executives, legislators moved quickly to impose a slew of new requirements on the financial sector. These reforms, passed under the umbrella of the Dodd-Frank Act, drastically altered the regulatory landscape for financial institutions.' Wall Street firms found themselves subject to a bewildering array of new regulatory requirements, from restrictions …

"Development" Versus" Sustainable Development"?: (Re-) Constructing The International Bank For Sustainable Development, Johanna A.P. Lorenzo

Vanderbilt Journal of Transnational Law

This Article scrutinizes the potential contribution of the World Bank, as an international economic organization, to the sustainable development agenda. Analyzing the reforms in policies, procedures, and organizational structure that accompanied the Bank's involvement in ostensibly political,non-economic matters such as human rights, environmental protection, and good governance--all of which are critical components of sustainable development--this Article contends that, contrary to the so-called mission creep argument, the evolution of the Bank's mandate is legally defensible and normatively desirable. Instead of amending its constituent instrument, the Bank has optimized the teleological-evolutionary approach to treaty interpretation to expand and reconstruct its mandate in …

Sustaining The Growth Of Mobile Money Services In Developing Nations: Lessons From Overregulation In The United States, Amanda B. Kernan

Vanderbilt Journal of Transnational Law

Billions of people around the world are excluded from the formal financial system and forced to store, transfer, and borrow money by using inefficient and unsafe methods. The recent introduction of mobile money programs in developing countries is revolutionizing financial inclusion by allowing users to store and transfer money on their mobile phones, thereby eliminating the need to access a bank or an internet connection. Unfortunately, fears that these programs will be used to launder money and finance terrorism have led the international community to develop and implement restrictive anti-money laundering policies that will likely impede the growth and accessibility …

The Money Problem: A Rejoinder, Morgan Ricks

Vanderbilt Law School Faculty Publications

Let me begin by thanking Yuri Biondi and Accounting, Economics and Law: A Convivium for hosting this book review symposium. It is a privilege to have my book reviewed by this distinguished roster of experts. Since the book's publication I have had some time to reflect on its strengths and weaknesses. Unsurprisingly, the reviewers in this issue have identified a number of the book's more glaring shortcomings. But it relieves me to say that I don't think the book's key arguments have (yet) sustained any mortal wounds, even if solid blows have been landed.

The basic thesis of The Money …

The Chancery Bank Of Delaware: Appraisal Arbitrageurs Expose Need To Further Reform Defective Appraisal Statute, Stanley Onyeador

Vanderbilt Law Review

A dark pool, a form of Alternative Trading System ("ATS"), is a private securities trading platform that-unlike public exchanges such as the New York Stock Exchange-allows participants to execute large block trades with delayed public disclosure. As neither party in a dark market transaction is trading on the public, or "lit," market or knows the identity of its counterparty, dark market trades allow participants to trade anonymously and keep trade strategies from competitors. Further, because dark market trades do not have to be publicly disclosed in real time, the price of a given security will, theoretically, stay relatively stable as …

Ceo Side Payments In Mergers And Acquisitions, Brian Broughman

Vanderbilt Law School Faculty Publications

In addition to golden parachutes, CEOs often negotiate for personal side payments in connection with the sale of their firms. Side payments differ from golden parachutes in that they are negotiated ex post in connection with a specific acquisition proposal, whereas golden parachutes are part of the executive’s employment agreement negotiated when she is hired. While side payments may benefit shareholders by countering managerial resistance to an efficient sale, they can also be used to redistribute merger proceeds to management. This Article highlights an overlooked distinction between pre-merger golden parachutes and merger side payments. Similar to a legislative rider attached …

Entry Restriction, Shadow Banking, And The Structure Of Monetary Institutions, Morgan Ricks

Vanderbilt Law School Faculty Publications

Entry restriction has a noble pedigree in banking law. Soon after the founding of the Bank of England in 1694, Parliament forbade all other business entities apart from small partnerships from issuing bank notes and their equivalents. Subsequent acts of Parliament confirmed that the object of the prohibition was to give the Bank of England the ‘privilege or power’ of ‘exclusive banking’. In the USA, similar prohibitions, called ‘restraining acts’, were established at the state level in the early nineteenth century. Later, when Congress established the national banking system in the early 1860s, it prohibited (through the device of punitive …

Why China Established The Asia Infrastructure Investment Bank, Daniel C.K. Chow

Vanderbilt Journal of Transnational Law

On January 16, 2016, China officially opened the Asia Infrastructure Investment Bank (AIIB) for business, representing what might be a seismic shift in economic power from the United States to China. The AIIB creates a challenge to the U.S.-dominated World Bank and International Monetary Fund (IMF), two venerable international financial institutions created at the end of World War II. The World Bank lends money to developing countries to promote economic development, but these loans come with conditions called the Washington Consensus--a set of policies designed to promote the use of private markets, protect the environment, protect human and workers' rights, …

Safety First: The Deceptive Allure Of Full Reserve Banking, Morgan Ricks

Vanderbilt Law School Faculty Publications

In Safe Banking, Professor Adam Levitin joins a venerable tradition in the money and banking literature. That tradition, called full reserve banking, has claimed a number of illustrious supporters over the years, including Professors Irving Fisher, Henry Simons, and Milton Friedman. The basic idea of full re­serve banking is seductive in its simplicity: "banks" should own nothing but physical cash. Because a full reserve bank has no in­vestments, it can suffer no investment losses. A run on such a bank would be harmless, because the bank would never fail to meet redemptions (barring any loss or theft of cash). The …

In Praise Of Ex Ante Regulation, Brian Galle

Vanderbilt Law Review

The plaintiffs' daughter was four years old when they brought her in to the local medical clinic. Clinic staff gave the girl a sedative to keep her calm while they examined her, but they miscalculated the dose, and she later died.' Tort liability, or the specter of it, is supposed to discourage these kinds of preventable tragedies. The clinic's owner, fearing a potential crippling award to bereaved families, should have trained his staff more carefully. As it happens, the owner instead had carefully scooped all the assets out of the firm. When the girl's parents won a $34.6 million award …

Stemming The Rising Risk Of Credit Inequality, Francesca L. Procaccini

Vanderbilt Law School Faculty Publications

In the wake of the devastating effects of the global financial crisis and the collapse of the national housing market, non-profit organizations, private citizens, and government agencies have increasingly filed discrimination lawsuits against creditors and mortgage lenders for extending credit to minority borrowers on terms less favorable than those offered to white borrowers with similar risk profiles. These lawsuits argue that creditors pursued discriminatory policies, which, although neutral on their face, have had an adverse and indefensible “disparate impact” on minority borrowers in violation of numerous antidiscrimination laws, including the Equal Credit Opportunity Act (ECOA).

Indeed, volumes of evidence now …

Insider Trading In Derivatives Markets, Yesha Yadav

Vanderbilt Law School Faculty Publications

The prohibition against insider trading is becoming increasingly anachronistic in markets where derivatives like credit default swaps (CDS) operate. Lenders use these instruments to trade the credit risk of the loans they extend. By design, CDS appear to subvert insider trading laws, insofar as lenders rely on what looks like insider information to transfer or externalize the risk of a loan to another institution. At the same time, the harm caused by using insider information in CDS markets can depart radically from the harms envisioned under existing case law. In the traditional account of insider trading, shareholders systematically lose against …

Proposed Legal Constraints On Private Student Lenders, Mary C. Nicoletta

Vanderbilt Law Review

Many American high school graduates face a difficult choice: They can pursue higher education and the higher earnings it provides, but that means taking on debt that it may take them decades to pay back. Or they can forego a college degree and its attendant debt but be stuck earning lower wages for their entire lives. For many of these students, there is no viable third option. From an early age, many Americans have been told about the value of a college degree-without one, finding a job is difficult and lifetime income is severely depressed. Data relating educational attainment to …

Symposium: The Role Of Federal Law In Private Wealth Transfer, Jeffrey Schoenblum

Vanderbilt Law School Faculty Publications

Increasingly, federal law impacts court decisions involving private wealth transfer. Increasingly, federal law is the central consideration in premortem and postmortem planning for private wealth transfer. Despite this, until recently, little scholarly attention has been paid to this phenomenon; the assumption regarding the centrality of state law, quoted above, having gone largely unquestioned. But now that the "sleeping giant" has awakened, the role that federal law plays in private wealth transfer requires serious and comprehensive academic consideration.

Destructive Federal Preemption Of State Wealth Transfer Law In Beneficiary Designation Cases: Hillman Doubles Down On Egelhoff, John H. Langbein

Vanderbilt Law Review

The probate codes in about a third of the states contain a so-called divorce revocation provision, applicable both to probate and nonprobate transfers. Such statutes address the situation in which a transferor's will or will substitute designates as a beneficiary a person who was the transferor's spouse at the time that the transferor executed the document, but whom the transferor later divorced. The premise of these statutes is that divorce entails a profound change of circumstances not foreseen by the transferor, and that the transferor is unlikely to have intended to benefit an ex-spouse. Accordingly, the intent- implementing purpose of …

Regulation By Hypothetical, Mehrsa Baradaran

Vanderbilt Law Review

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 …

Tax Rebates And The Cycle Of Payday Borrowing, Paige Marta Skiba

Vanderbilt Law School Faculty Publications

I examine whether receipt of a $300 tax rebate by payday borrowers affects their like- lihood of borrowing, loan size, or default behavior. Results from fixed-effects models show that the rebate decreases the probability of taking out a payday loan in the short run. These impacts are most apparent among credit-constrained, infrequent borrow- ers. Those who take out loans around the time of the rebate borrow amounts typical of their normal borrowing behavior but are more likely to default. Overall, however, the rebate's effects are small and short-lived, suggesting a muted response to this cash windfall in payday borrowing and …

Dude, Where's My Car Title?: The Law, Behavior, And Economics Of Title Lending Markets, Paige Marta Skiba, Kathryn Fritzdixon, Jim Hawkins

Vanderbilt Law School Faculty Publications

Millions of credit-constrained borrowers turn to title loans to meet their liquidity needs. Legislatures and regulators have debated how to best regulate these transactions, but surprisingly, we still know very little about the customers who use title loans. This Article reports findings from the first large-scale academic study of title lending customers. We surveyed over 400 title lending customers across three states and obtained information about customers’ demographic and behavioral characteristics.

Based on the results of our survey and guided by insights from behavioral economics, this Article seeks to reframe the title lending debate. Instead of focusing on the risks …

Save Now, Win Later: Removing Statutory Barriers To Prize-Linked Savings Initiatives, Ann E. Watford

Vanderbilt Law Review

In February of 2010, Billie June Smith received exciting news. As the lucky winner of a statewide drawing, this elderly woman was awarded a giant check for $100,000. Billie June's good fortune cost her nothing, for she did not spend any money on the winning ticket. Instead, she became eligible for the grand prize when she decided to save for her retirement at her local credit union. Billie June was the inaugural grand-prize winner of "Save to Win," an innovative pilot program that launched in 2009 to test a concept known as prize-linked savings. In partnership with the nonprofit Doorways …

The Monetary Fifth Column: The Eurodollar Threat To Financial Stability And Economic Sovereignty, Stephen A. Fowler

Vanderbilt Journal of Transnational Law

Eurodollars are dollar-denominated deposit liabilities of banks outside the United States. Even though estimates of the size of the Eurodollar market exceed $5 trillion, these instruments are virtually unregulated. Legal scholarship has very little to say about Eurodollars, and the economic literature on the subject is geared toward economists and banking professionals rather than policy makers and attorneys. Furthermore, the economic scholarship is focused on describing the way Eurodollar markets function rather than critical examination of their nature and attendant risks. This Note is an attempt to get to the bottom of this ubiquitous yet mysterious financial instrument. It describes …

Information Asymmetries In Consumer Credit Markets: Evidence From Payday Lending, Paige Marta Skiba, Will Dobbie

Vanderbilt Law School Faculty Publications

Information asymmetries are prominent in theory but difficult to estimate. This paper exploits discontinuities in loan eligibility to test for moral hazard and adverse selection in the payday loan market. Regression discontinuity and regression kink approaches suggest that payday borrowers are less likely to default on larger loans. A $50 larger payday loan leads to a 17 to 33 percent drop in the probability of default. Conversely, there is economically and statistically significant adverse selection into larger payday loans when loan eligibility is held constant. Payday borrowers who choose a $50 larger loan are 16 to 47 percent more likely …

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 …

The Problematic Case Of Clearinghouses In Complex Markets, Yesha Yadav

Vanderbilt Law School Faculty Publications

This Article challenges the academic and policy consensus that clearinghouses adequately mitigate the risks of trading credit derivatives. The Article advances two arguments. First, scholars have devoted little attention to the risks posed by underlying assets (e.g. a mortgage loan) that the credit derivative references and the impact that these have on the clearinghouse. Credit derivatives enable the economic risk of debt to be separated from the legal rights attaching to that debt. This separation impacts the clearinghouse profoundly. As a contract party to each trade it processes, the clearinghouse can be saddled with economic risk of underlying debt without …

Making Money: Leverage And Private Sector Money Creation, Margaret M. Blair

Vanderbilt Law School Faculty Publications

In the wake of the financial crisis of 2008-2009, practitioners and theorists in law, finance, and economics are rethinking our theories about how the financial sector influences the real economy. In particular, they are reexamining the linkages among financial innovation, supply of credit and money, monetary policy, bubbles, financial stability, and economic growth. One of the key issues that is being reconsidered is the dynamics of how banks and other financial institutions drive credit creation and credit allocation, and how these factors, in turn affect the performance of the macroeconomy. In this article, I argue that, by providing an alternative …

Recovering "Protection And Security", George K. Foster

Vanderbilt Journal of Transnational Law

Among the most persistent controversies in international investment law is the nature of the "'protection and security" standard found in most investment treaties. Some tribunals contend that the standard requires nothing more than physical protection of covered investments, while others maintain that it requires legal security as well. Some insist that it is entirely distinct from the fair and equitable treatment standard that is often expressed in the same sentence or paragraph, while others effectively conflate the two standards. These conflicting decisions are undermining the legitimacy of investment treaty arbitration, but this Article seeks to resolve the controversies underlying them …

Pawnshops, Behavioral Economics, And Self Regulation, Paige Marta Skiba, Susan Payne Carter

Vanderbilt Law School Faculty Publications

Pawnbroking is the oldest source of credit. There is growing public interest in day-to-day pawnbroking operations, as evidenced by the popularity of reality shows such as “Pawn Stars” and “Hardcore Pawn.” Television viewers’ curiosity about an old credit institution may be due to the fact that 7% of all U.S. households have used pawn credit. Although pawnshops predate biblical times, researchers know surprisingly little about this ancient form of banking and its customers. We fill this gap by documenting detailed information on pawnshop loan repayment and default, and by discussing how pawnshop borrowers’ behavior is consistent with various behavioral economics …

A Regulatory Design For Monetary Stability, Morgan Ricks

Vanderbilt Law Review

This Article proposes a unified regulatory approach to the issuance of "money-claims"--a generic term that refers to fixed-principal, very short-term IOUs, excluding trade credit. The instability of this market is arguably the central problem for financial regulatory policy. Yet our existing regulatory system lacks a coherent approach to this market. The Article proposes a public-private partnership ("PPP") regime, under which only licensed entities would be permitted to issue money - claims (subject to de minimis exceptions). Licensed money- claim issuers would be required to abide by portfolio restrictions and capital requirements. In addition, the government would explicitly insure licensed issuers' …