Banking and Finance Law Commons^™

The Response To The Financial Meltdown In The U.K., Bruce J.L. Lowe

Global Business Law Review

It is now over two years since the September 15, 2008 bankruptcy filing by Lehman Brothers sent shockwaves through an already tremulous and jittery financial and political world. In the dark days of the ensuing months, in the United States (U.S.), in Britain and Europe, and in many other parts of the world, markets crashed or severely slumped, commercial and investment banks failed, credit froze, trade and commerce slowed dramatically, profits evaporated, businesses tightened belts, and unemployment figures skyrocketed. In most major economic zones, including the U.S. and Europe, governments and central banks, often in consultation with each other over …

Private Enforcement Of Systemic Risk Regulation, Heidi Mandanis Schooner

Scholarly Articles

The failure of the regulatory system is at least one of the contributing causes to the 2008 Financial Crisis. The Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank Act”) will have a far-reaching impact on the financial services industry particularly in its attempt to regulate systemic risk. The Dodd-Frank Act, however, does not sufficiently address the problem of agency discretion generally, or the problem of an agency’s discretion to forebear, in particular. Under Dodd-Frank, the agencies retain considerable discretion and the effectiveness of the new regime depends on the optimal exercise of such discretion. This Article maintains that an …

Banks And Brokers And Bricks And Clicks: An Evaluation Of Finra's Proposal To Modify The "Bank Broker-Dealer Rule", Jill I. Gross

Elisabeth Haub School of Law Faculty Publications

As discussed in this article, the proposed rule change protects bank customers who may be solicited for the purchase of investment products and services, but only to a limited extent. It does not rectify sales practices of broker-dealers--affiliated with financial institutions--which tend to confuse, and even mislead, financially unsophisticated investors of modest means who can least afford to be exposed to excessive risk. Additionally, the proposed rule change adds no meaningful surveillance, inspection, enforcement, or punitive mechanisms to prevent and/or redress insidious practices that are akin to “bait and switch” tactics and are particularly effective against financially unsophisticated investors. In …

Populist Retribution And International Competition In Financial Services Regulation, Adam C. Pritchard

Articles

The pattern of regulatory reform in financial services regulation follows a predictable pattern in democratic states. A hyperactive market generates a bubble, the bubble deflates, and much financial pain ensues for those individuals who bought at the top of the market. The financial mess brings the scrutiny of politicians, who vow "Never again!" A political battle ensues, with representatives of the financial services industry fighting a rearguard action to preserve its prerogatives amidst cries for the bankers' scalps. Regulations, carefully crafted to win the last war, are promulgated. Memories fade of the foolish enthusiasm that fed the last bubble. Slowly, …

Bonding Bankers: Notes Toward A Governance Approach To Risk Regulation, Frederick Tung

Faculty Scholarship

Important regulatory failures have been identified in the wake of the recent financial crisis, and comprehensive regulatory reform has been much on the minds of policymakers. Reform proposals call for a number of significant changes to the scope and structure of financial regulation to address systemic risk. With banking regulation, however, the twin tools of capital requirements and external supervision seem to remain the dominant regulatory levers. In this short discussion, I introduce the contours of an important supplement to the existing approach, a governance approach that uses bank executives' compensation arrangements as a policy lever. I propose that bank …

In Search Of Justice: Increasing The Risk Of Business With State Sponsors Of Terror, Gabriel C. Lajeunesse

Michigan Law Review First Impressions

If the aims of tort law are deterrence, compensation, and provision of equitable distribution of risks, U.S. anti-terrorism laws have been margin-ally effective at best. Though Congress has passed legislation providing causes of action to U.S. victims of terrorism, compensation of victims is often difficult and terrorists are rarely deterred. Attempts to provide such recourse include the Antiterrorism Act of 1991 ("ATA"), the Antiterrorism and Effective Death Penalty Act of 1996 ("AEDPA"), and the Flatow Amendment to the Foreign Sovereign Immunities Act ("FSIA"). These attempts, however, are not enough.

The Case For Behaviorally Informed Regulation, Michael S. Barr, Sendhil Mullainathan, Eldar Shafir

Book Chapters

Policymakers approach human behavior largely through the perspective of the “rational agent” model, which relies on normative, a priori analyses of the making of rational decisions. This perspective is promoted in the social sciences and in professional schools, and has come to dominate much of the formulation and conduct of policy. An alternative view, developed mostly through empirical behavioral research, provides a substantially different perspective on individual behavior and its policy implications. Behavior, according to the empirical perspective, is the outcome of perceptions, impulses, and other processes that characterize the impressive machinery that we carry behind the eyes and between …

Introduction, Richard D. Marsico

Articles & Chapters

No abstract provided.

The Great Bailout Of 2008-09, Frederick Tung

Faculty Scholarship

My task today is to talk about the financial crisis. I only have a short time to talk, so rather than try to give you a comprehensive analysis of events, I'm going to offer some of my own idiosyncratic takes on what has been happening. In addition, I will introduce my own small reform proposal for regulating bank risk taking. So, I'll give you a little bit of news, a little bit of weather, a little bit of everything.

Where are we now? Let us begin with a statement Henry Paulson made six months ago while Bear Steams was getting …

Introduction, Richard Marsico

NYLS Law Review

No abstract provided.

Issue Brief: Overcoming Legal Barriers To The Bulk Sale Of At-Risk Mortgages, Michael S. Barr, James A. Feldman

Other Publications

This memorandum argues that the sale of loans and loan pools to new owners would help to stabilize housing prices, and that such a modification to the REMIC rules would be desirable and well within Congress’ constitutional authority. Furthermore, it would not lead to successful legal claims by investors in securitized loan pools under the Just Compensation or Due Process clauses, which provide the primary constitutional protections for property interests.

An Opt-Out Home Mortgage System, Michael S. Barr, Sendhil Mullainathan, Eldar Shafir

Other Publications

The current housing and financial crisis has led to significant congressional and executive action to manage the crisis and stem the harms from it, but the fundamental problems that caused the crisis remain largely unaddressed. The central features of the industrial organization of the mortgage market with its misaligned incentives, and the core psychological and behavioral phenomena that drive household financial decisionmaking remain. While the causes of the mortgage meltdown are myriad and the solutions likely to be multifaceted, a central problem that led to the crisis was that brokers and lenders offered loans that looked much less expensive and …

Behaviorally Informed Financial Services Regulation, Michael S. Barr, Sendhil Mullainathan, Eldar Shafir

Other Publications

Financial services decisions can have enourmous consequences for household well-being. Households need a range of financial services - to conduct basic transactions, such as receiving their income, storing it, and paying bills; to save for emergency needs and long-term goals; to access credit; and to insure against life's key risks. But the financial services system is exceedingly complicated and often not well-designed to optimize house-hold behavior. In response to the complexity of out financial system, there has been a long running debate about the appropriate role and form of regulation. Regulation is largely stuck in two competing models - disclosure, …

Stochastic Modeling Of Retail Mortgage Loans Based On Past Due, Prepaid, And Default States, Chang Liu

Doctoral Dissertations

Stochastic models were developed that provide important measures related to retail mortgages and credit cards for the management of a bank. Based on Markov theory, two models were developed that predict mortgage portfolio size and expected duration of stay in each of the states, which are defined according to the criteria of Basel Accord II and the Federal Reserve Bank. Also, to facilitate comparisons among different types of credit products and different time periods, a model was developed to generate a health index for a retail mortgage. This model could be easily extended, using multivariate regression or multivariate time series …

Impediments To Financial Development In The Banking Sector: A Comparison Of The Impact Of Federalism In The United States And Germany, Khalil Nicholas Maalouf

Michigan Journal of International Law

This Note examines how differences in U.S. and German variants of federalism have contributed to the formation and development of the dual banking system in the United States and the three-pillar banking system in Germany. Specifically, this Note considers the manner in which federalism has informed the respective banking systems' reactions to dynamic changes in the global banking industry and analyzes the role federalism has played in contributing to or impeding reform efforts in the United States and Germany.

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.

Essay -- Preemption, Agency Cost Theory, And Predatory Lending By Banking Agents: Are Federal Regulators Biting Off More Than They Can Chew?, Christopher L. Peterson

ExpressO

A pitched battle is currently being waged for control of the American banking industry. For over a hundred years, the federal and state governments have maintained a complex, but relatively stable truce in their contest for power. At the beginning of our republic, state governments were the primary charterers and regulators of banks. In the wake of the Civil War, the National Bank Act created parity between federal and state banks, cementing the notion of a “dual banking system” that endured through the twentieth century. But in the past five years, the federal government has increasingly used its powers under …

Consuming Debt: Structuring The Federal Response To Abuses In Consumer Credit, Heidi Mandanis Schooner

Scholarly Articles

Predatory lending is an avaricious fraud that demands attention. Several states have enacted new laws to combat predatory lending. Moreover, the battle against predatory lending and other abusive practices has focused attention on the overall structure of consumer credit laws. The current structure is dual; both state and federal governments play significant roles in combating credit fraud. The dual structure has been the source of controversy as federal regulators have claimed the power to preempt state law. This article furthers the structural debate and the effort to combat predatory lending by examining the architecture of consumer credit laws within the …

Constitutional Cash: Are Banks Guilty Of Racial Profiling In Implementing The United States Patriot Act?, Cheryl R. Lee

Michigan Journal of Race and Law

This Article begins by comparing the concerns of American racial profiling to current terrorism concerns. Part II is an overview of the Bank Secrecy Act and its role in privacy issues concerning bank customers (as the predecessor to the USA Patriot Act). Here, the value of traditional reporting devices, specifically CTRs and SARs used by banks to alert law enforcement to possible terrorist activities, are discussed and evaluated. The facts suggest these reports have been ineffective in identifying terrorists, and have not only greatly infringed upon First Amendment privacy rights, but also diminished the Fourth Amendment protection against warrant-less searches …

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 …

Advancing The Cra—Using The Cra's Strategic Plan Option To Promote Community Inclusion: The Cra And Community Inclusion, Cassandra Jones Havard

All Faculty Scholarship

Banks, banking regulators, and community organizations have spent nearly thirty years interpreting and re-interpreting the simple but ambiguous mandate of the Community Reinvestment Act (CRA). The statute imposes an affirmative duty requiring "regulated financial institutions to have continuing... obligations to help meet the credit needs of the local communities in which they are chartered." The CRA was met with much resistance and lax enforcement for almost a decade. Active protest from community groups, a more defined CRA exam, and innovative, profitable lending strategies, have resulted in a dramatic increase in community reinvestment dollar commitments and in loans to low- and …

Responsibility Of International Organizations: The Accountability Mechanisms Of Multilateral Development Banks, Eisuke Suzuki, Suresh Nanwani

Michigan Journal of International Law

This Article will focus on the development of access for third parties, particularly private individuals, to lodge claims against MDBs for noncompliance with their policies and procedures.

How Law Affects Lending, Rainer F.H. Haselmann, Katharina Pistor, Vikrant Vig

Faculty Scholarship

The paper explores how legal change affects lending behavior of banks in twelve transition economies of Central and Eastern Europe. In contrast to previous studies, we use bank level rather than aggregate data, which allows us to control for country level heterogeneity and analyze the effect of legal change on different types of lenders. Using a differences-in-differences methodology to analyze the within country variation of changes in creditor rights protection, we find that the credit supplied by banks increases subsequent to legal change. Further, we show that collateral law matters more for credit market development than bankruptcy law. We also …

Glass-Steagall: The American Nightmare That Became The Israeli Dream, Ehud Ofer

Fordham Journal of Corporate & Financial Law

No abstract provided.

The Relationship Of Imf Structural Adjustment Programs To Economic, Social, And Cultural Rights: The Argentine Case Revisited, Jason Morgan-Foster

Michigan Journal of International Law

Perhaps as important as what this Note is, is what it is not: Economic theories abound concerning the causes of the Argentine crisis, some of which directly analyze the IMF's causal connection to the Argentine catastrophe. A Note on this subject would be one of economic theory, not international human rights law. While at certain points in the analysis of the human rights implications of SAPs, it will become difficult to avoid some speculation of economic theory, it is not the primary focus of this Note. Rather than implicate the IMF as part of the cause of the crisis, this …

Kentucky Taxation Of Banking Institutions (1802-1996): An Historical Overview, Timothy J. Eifler

Kentucky Law Journal

No abstract provided.

Should Banks Be Permitted To Engage In Real Estate Brokerage And Management Services: How The Current Debate Demonstrates The Inadequacies Of The Gramm-Leach-Bliley Act, Patrick J. Burke

Cleveland State Law Review

One of the first major efforts by regulators to expand the list of permissible activities under the Gramm-Leach-Bliley Act is to allow financial holding companies and financial subsidiaries of nationally chartered banks to engage in real estate brokerage and real estate management services. Part II of this Note will provide a brief history of the financial service regulations that preceded the Gramm-Leach-Bliley Act. Part III will discuss the legislative history of the Gramm-Leach-Bliley Act, provide a brief overview of the Act, and detail the provision which may allow financial holding companies to engage in real estate brokerage and management activities. …

Banking For The Unbanked, Michael S. Barr

Articles

The consequences of not having access to mainstream financial services can be severe. Fim, the "unbanked" face high costs for basic financial servies. For example, a 2000 Treasury [U.S. Treasury Department] study found that a worker eaming $12,000 a year would pay approximately $250 annually just to cash payroll checks at a check cashing outlet, in addition to fees for money orders, wire transfers, bill payments, and other common transactions. Regular payments with low credit risk that could be directly deposited into bank accounts, with significantly lower payment systems costs, form the bulk of checks cashed at these check cashing …

Emu And The Role Of The National Central Banks In The Eurosystem, J. Alfred Broaddus Jr.

Richmond Journal of Global Law & Business

J. Alfred Broaddus, Jr.'s comments at Davidson regarding the EMU and the role of the National Central Banks in the Eurosystem.

The Usury Trompe L'Oeil, James J. White

Articles

This Article demonstrates how the interaction of a federal statute passed in 1864,1 a case decided by the Supreme Court in 1978,2 and modem technology has legally debarred every state legislature from controlling consumer interest rates in its state-but not from passing laws that appear to do so-and has politically debarred the Congress from setting federal rates to replace the state rates. As a consequence, the elaborate usury laws on the books of most states are only a trompe l'oeil, a "visual deception... rendered in extremely fine detail ... ." The presence of these finely detailed laws gives the illusion …