Banking and Finance Law Commons^™

Why The Fed Should Issue A Policy Framework For Credit Policy, Kathryn Judge

Faculty Scholarship

The Federal Reserve has long used policy frameworks to both explain and inform its policymaking. These policy frameworks typically explain what the Fed is seeking to achieve in a given domain and how it plans to achieve its desired aims. Two prominent examples are the Fed’s use of Bagehot’s dictum when acting as a lender of last resort and its monetary policy framework issued in 2012 and revised in 2020. In both instances, the framework provides a foundation for informed debate among Fed policymakers, Congress, and the public, enhancing both efficacy and accountability. Since the onset of the Covid crisis, …

The Temporary Liquidity Guarantee Program: A Systemwide Systemic Risk Exception, Lee Davison

Journal of Financial Crises

In the fall of 2008, short-term credit markets were all but frozen, creating liquidity issues for banks and bank holding companies that could not rollover their debt at reasonable rates. Fearing that the situation would worsen if something was not done, the Federal Deposit Insurance Corporation (FDIC) and the Federal Reserve Board invoked, and the Secretary of the Treasury approved, the use of the “systemic risk exception” (SRE) under the Federal Deposit Insurance Corporation Improvement Act of 1991, to provide unprecedented broad-based relief to struggling banks. The SRE permitted the FDIC to depart from its “least-cost” requirement when addressing failing …

Lessons Learned: Thomas C. Baxter, Jr., Esq., Alec Buchholtz, Rosalind Z. Wiggins

Journal of Financial Crises

Baxter, who was General Counsel of the Federal Reserve Bank of New York during the crisis, gives us his take on how best to prepare for future crises.

Yale Program On Financial Stability Lessons Learned: Scott Alvarez, Esq., Alec Buchholtz, Rosalind Z. Wiggins

Journal of Financial Crises

Alvarez, who was General Counsel of the Federal Reserve System, Board of Governors during 2007-2009, gives us his take on how best to prepare for future crises.

Negotiating The Lender Of Last Resort: The 1913 Federal Reserve Act As A Debate Over Credit Distribution, Nadav Orian Peer

Publications

“Lending of last resort” is one of the key powers of central banks. As a lender of last resort, the Federal Reserve (the “Fed”) famously supports commercial banks facing distressed liquidity conditions, thereby mitigating destabilizing bank runs. Less famously, lender-of-last-resort powers also influence the distribution of credit among different groups in society and therefore have high stakes for economic inequality. The Fed’s role as a lender of last resort witnessed an unprecedented expansion during the 2007–2009 Crisis when the Fed invoked emergency powers to lend to a new set of borrowers known as “shadow banks”. The decision proved controversial and …

Discretion To Act: How The Federal Reserve's Decisions Whether To Provide Emergency Loans During The Financial Crisis Were Discretionary And Why Dodd-Frank Falls Short Of Preventing Future Bailouts, John De Vito

The Journal of Business, Entrepreneurship & the Law

The housing market crash of 2007–2008 threatened to cause the collapse of the United States and global economies. By early 2008, Bear Stearns, Lehman Brothers, and American International Group all faced the strong possibility of bankruptcy absent government intervention. The Federal Reserve Board of Governors activated its emergency lending powers pursuant to Section 13(3) of the Federal Reserve Act to “bail out” Bear Stearns and American International Group, but elected to let Lehman Brothers fail. Lehman’s bankruptcy led to a run on money market mutual funds, made it impossible for corporations to raise capital, led to widespread layoffs across economic …

Don't End Or Audit The Fed: Central Bank Independence In An Age Of Austerity, Neil H. Buchanan, Michael C. Dorf

Cornell Law Faculty Publications

The Federal Reserve (the Fed) is the central bank of the United States. Because of its power and importance in guiding the economy, the Fed's independence from direct political influence has made it a target of ideologically motivated attacks throughout its history, with an especially aggressive round of attacks coming in the wake of the 2008 financial crisis and ongoing today. We defend Fed independence. We point to the Fed's exemplary performance during and after the 2008 crisis, and we offer the example of a potential future crisis in which Congress falls to increase the debt ceiling to show how …

Mobile Banking: The Answer For The Unbanked In America?, Catherine Martin Christopher

Catholic University Law Review

In the United States, the poor often lack access to mainstream banking services. Instead, they rely on expensive, poorly regulated alternatives like check cashers, payday lenders, pawnshops, and auto title lenders. These financial products jeopardize poor people’s financial and physical security. In pushing adoption of traditional banking products, both government officials and private enterprise have attempted to craft solutions to the banking access problem, but so far these attempts have fallen short. This Article asserts that mobile banking may be a transformative technology that can significantly increase financial inclusion in the United States.

The Article discusses current statistics and demographics …

Underbanked: Cooperative Banking As A Potential Solution To The Marijuana-Banking Problem, Patrick A. Tighe

Michigan Law Review

Numerous states have recently legalized recreational marijuana, which has created a burgeoning marijuana industry needing and demanding access to a variety of banking and financial services. Due, however, to the interplay between the federal criminalization of marijuana and federal anti-money laundering laws, U.S. financial institutions cannot handle legally the proceeds from marijuana activity. As a result, most financial institutions are unwilling to flout federal anti-money laundering laws, and so too few marijuana-related businesses can access banking services. This Note argues that the most viable policy option for resolving this “underbanking” problem is a financial cooperative approach such as a cannabis-only …

Don't End Or Audit The Fed: Central Bank Independence In An Age Of Austerity, Neil H. Buchanan, Michael C. Dorf

UF Law Faculty Publications

The Federal Reserve (the Fed) is the central bank of the United States. Because of its power and importance in guiding the economy, the Fed's independence from direct political influence has made it a target of ideologically motivated attacks throughout its history, with an especially aggressive round of attacks coming in the wake of the 2008 financial crisis and ongoing today. We defend Fed independence. We point to the Fed's exemplary performance during and after the 2008 crisis, and we offer the example of a potential future crisis in which Congress falls to increase the debt ceiling to show how …

The First Year: The Role Of A Modern Lender Of Last Resort, Kathryn Judge

Faculty Scholarship

Insufficient liquidity can trigger fire sales and wreak havoc on a financial system. To address these challenges, the Federal Reserve (the Fed) and other central banks have long had the authority to provide financial institutions liquidity when market-based sources run dry. Yet, liquidity injections sometimes fail to quell market dysfunction. When liquidity shortages persist, they are often symptoms of deeper problems plaguing the financial system.

This Essay shows that continually pumping new liquidity into a financial system in the midst of a persistent liquidity shortage may increase the fragility of the system and, on its own, is unlikely to resolve …

From Fedspeak To Forward Guidance: Regulatory Dimensions Of Central Bank Communications, Robert B. Ahdieh

Faculty Scholarship

In the face of the financial crisis that engulfed the globe beginning in 2007, the U.S. Federal Reserve quickly found itself without the key lever of monetary policy on which it had traditionally relied: short-term interest rate adjustments designed to move long-term rates, and thereby expected levels of lending, investment, and capital retention. By late 2008, short-term rates were already close to zero, yet unemployment remained strikingly high – with no sign of any likely renewal of bank lending or commercial investment.

Famously, the Fed embraced so-called quantitative easing – the purchase of massive volumes of public and private debt …

A Good Rule, Poorly Written: How The Financial Crisis Highlighted The Inadequacy Of Iolta Rate Rules, Andrew Arthur

Catholic University Law Review

Interest on lawyer trust accounts (IOLTA) provide a substantial component of funding that is used to provide legal aid to needy individuals throughout the United States. However, IOLTA program revenues fluctuate with the deposit interest rates, which have remained near zero after the onset of the 2008 global financial crisis. The Comment examines IOLTA rate rules across the country, and the impact of reduces IOLTA revenues on legal aid programs. The Comment further asserts that IOLTA rate rules are not adequately designed to account for fluctuation in central bank interest rates, causing unanticipated problems for legal aid funding. Finally, the …

The Federal Reserve And A Cascade Of Failures: Inequality, Cognitive Narrowness And Financial Network Theory, Emma Coleman Jordan

Georgetown Law Faculty Publications and Other Works

The recent financial crisis hollowed out the core of American middle-class financial stability. In the wake of the financial crisis, household net worth in the U.S. fell by 24%, for a loss of $16 trillion. Moreover, retirement accounts, the largest class of financial assets, took a steep drop in value, as did house prices, and these two classes of assets alone represent approximately 43% of all household wealth. The losses during the principal crisis years, 2007–2009, were devastating, “erasing almost two decades of accumulated prosperity,” in the words of a 2013 report. By the Federal Reserve. Beyond these direct household …

Accountability And Independence In Financial Regulation: Checks And Balances, Public Engagement, And Other Innovations, Michael S. Barr

Articles

Financial regulation attempts to balance two competing administrative goals. On the one hand, as with much of administrative law, accountability is a core goal. Accountability undergirds the democratic legitimacy of administrative agencies. On the other hand, unlike with much of administrative law, independence plays a critical role.' Independence helps to protect financial regulatory agencies from political interference and-with some important caveats-arguably helps to guard against some forms of industry capture. In addition, with respect to the Federal Reserve (the Fed), independence serves to improve the credibility of the Fed's price stability mandate by insulating its decisionmaking from politics and, in …

Real Estate Investment By Bank Holding Companies And Their Risk And Return: Nonparametric And Garch Procedures, Scott Deacle, Elyas Elyasiani

Business and Economics Faculty Publications

We investigate the association between real estate investment by US Bank Holding Companies (BHCs) and their return, risk and risk-adjusted returns. Three portfolios are formed of BHCs according to whether they do or do not invest in real estate, strictness of the regulation on real estate investment and the ratio of real estate investment to assets. Wilcoxon tests of differences in portfolio returns, risk, risk-adjusted returns and value at risk between each pair of portfolios are conducted to determine how engagement in real estate, stricter regulation and increased real estate investment affect BHC performance. These effects are also investigated within …

The Federal Reserve As Last Resort, Colleen Baker

University of Michigan Journal of Law Reform

The Federal Reserve, the central bank of the United States, is one of the most important and powerful institutions in the world. Surprisingly, legal scholarship hardly pays any attention to the Federal Reserve or to the law structuring and governing its legal authority. This is especially curious given the amount of legal scholarship focused on administrative agencies that do not have anywhere near as critical a domestic and international role as that of the Federal Reserve. At the core of what the Federal Reserve does and should do is to conduct monetary policy so as to safeguard pricing, including that …

The Challenge Of Optimism And Complexity: Inadequately Addressed By The Fcic's Report, Timothy E. Lynch

Faculty Works

No abstract provided.

Lecture At Fordham Corporate Law Center By William Dudley, President Of Federal Reserve Bank Of New York, William Dudley

Fordham Journal of Corporate & Financial Law

No abstract provided.

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, …

Bank Merger Reform Takes An Extended Philadelphia National Bank Holiday, Edward Pekarek, Michela Huth

Fordham Journal of Corporate & Financial Law

No abstract provided.

Keynote Address, Susan S. Bies, Alan Rechtschaffen

Fordham Journal of Corporate & Financial Law

No abstract provided.

Even Before Enron: Banking Regulators, The Income Tax, The S&L Crisis, And Deceptive Accounting At The Supreme Court, Stephen B. Cohen

Georgetown Law Faculty Publications and Other Works

Years before the ENRON debacle, the Supreme Court heard a pair of cases involving dishonest financial accounting, Frank Lyon Co. v. U.S. and Cottage Savings Ass'n. v. Commissioner. In both cases, federal bank regulators had encouraged deceptive financial accounting, and the deceptive accounting became the basis for taxpayer claims. The Supreme Court, however, did not comment in either opinion on the deceptive character of the financial accounting that gave rise to tax litigation.

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 International Symposium On Derivatives And Risk Management, Carl Felsenfeld, Alan N. Rechtschaffen, Carolyn H. Jackson, Ruth W. Ainslie, Michael N. Brosnan, Darcy Bradbury, Denis M. Forster, Martin Bienenstock, David A.P. Brower, Aaron Rubinstein, David Morris, Eric Seiler, Peter D. Morgenstern, Michael J. Malone, John Lovi, Alvin K. Hellerstein, Charles E. Ramos

Fordham Journal of Corporate & Financial Law

No abstract provided.

Recent Market Events And The Foundation For Global Market Crises: The Experience Of Republic National Bank, Walter H. Weiner

Fordham Journal of Corporate & Financial Law

No abstract provided.

Nondeposit Deposits And The Future Of Bank Regulation, Jonathan R. Macey, Geoffrey P. Miller

Michigan Law Review

We argue in this paper that the nation has already entered with a vengeance into the era of nondeposit deposit banking. The traditional bank deposit against which reserves must be held and deposit insurance paid is suffering encroachment from a wide variety of competitive instruments and arrangements, all of which, to one degree or another - often to a substantial degree - serve a function economically similar to that of the checking account at a depository institution.

The legal system may respond to these developments by attempting to bring nondeposit deposits under regulation, as it has done with other banking …

The Lifeline Banking Controversy: Putting Deregulation To Work For The Low-Income Consumer, Edward L. Rubin

Indiana Law Journal

Symposium: The Financial Services Industry: A New World (Dis)Order?

The Constitutionality Of Regional Interstate Banking Laws, Patricia Matton

LLM Theses and Essays

This LL.M. thesis examines the constitutionality of regional interstate banking laws in the United States, tracing the historical development of the dual banking system from the National Bank Acts of the 1860s through the modern era of interstate expansion.  The work analyzes the federal legislative framework governing geographic restrictions on banking, including the McFadden Act's ban on interstate branching and the Douglas Amendment to the Bank Holding Company Act of 1956, and surveys the three principal legislative approaches to interstate banking (regional entry, regional-with-trigger-to-nationwide entry, and nationwide entry) as adopted by the New England states. The central analysis focuses on …

The Banking Act Of 1935, Harold James Kress

Michigan Law Review

The purpose of this article is to consider in a non-technical manner the principal changes in federal central and commercial banking law which have been brought about by the enactment of the Banking Act of 1935, and in that connection to take some account of the preexisting law and the announced or ostensible reasons for the changes made.