Banking and Finance Law Commons^™

Rationales And Designs To Implement An Institutional Big Bang In The Governance Of Global Finance, Emilios Avgouleas

Seattle University Law Review

The colossal challenges facing international finance pertain to both its governance system and its dual utility and speculative functions, which have become ever more intertwined with the advent of financial innovation. In the aftermath of the Global Financial Crisis (GFC), a number of significant reforms are under way to address the second issue, including additional capital and liquidity requirements for banks, measures to battle interconnectedness in the financial sector, new resolution regimes that would allow banks to fail more easily, and stricter frameworks for bank supervision and monitoring of systemic risk. Yet limited progress has been made with respect to …

Law In Finance, Katharina Pistor

Faculty Scholarship

Law’s relevance to finance is by now well recognized, in no small part due to the literature on "law and finance" (La Porta et al. 1998; La Porta, Lopez-de-Silanes, and Shleifer 2008) celebrated in this journal ten years ago under the heading "the new comparative economics" (Djankov et al. 2003). There will always be some debate as to whether a specific law or regulation distorts or supports markets, but few would argue today that law is irrelevant to financial markets or that they could operate entirely outside it.

This special issue takes the debate about the relation between law and …

A Legal Theory Of Finance, Katharina Pistor

Faculty Scholarship

This paper develops the building blocks for a legal theory of finance. LTF holds that financial markets are legally constructed and as such occupy an essentially hybrid place between state and market, public and private. At the same time, financial markets exhibit dynamics that frequently put them in direct tension with commitments enshrined in law or contracts. This is the case especially in times of financial crisis when the full enforcement of legal commitments would result in the self-destruction of the financial system. This law-finance paradox tends to be resolved by suspending the full force of law where the survival …

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 …

Towards A Legal Theory Of Finance, Katharina Pistor

Faculty Scholarship

This paper develops the building blocks for a legal theory of finance. LTF holds that financial markets are legally constructed and as such occupy an essentially hybrid place between state and market, public and private. At the same time, financial markets exhibit dynamics that frequently put them in direct tension with commitments enshrined in law or contracts. This is the case especially in times of financial crises when the full enforcement of legal commitments would result in the self-destruction of the financial system. This law-finance paradox tends to be resolved by suspending the full force of law where the survival …

Extending The Taxation-Of-Risk Model To Timing Options And Marked-To-Market Taxes, Eric D. Chason

Faculty Publications

No abstract provided.

An Innovative Link Between The Internet, The Capital Markets, And The Sec: How The Internet Direct Public Offering Helps Small Companies Looking To Raise Capital, Daniel Everett Giddings

Pepperdine Law Review

No abstract provided.

Insider Trading, Informed Trading, And Market Making: Liquidity Of Securities Markets In The Zero-Sum Game, Stanislav Dolgopolov

William & Mary Business Law Review

This Article reexamines the nexus of relationships among informed transactions, information asymmetry, and liquidity of securities markets in the context of public policy debates about insider trading and its regulation.The Article analyzes this nexus, with the emphasis on recent empirical studies and developments in the securities industry, from a variety of perspectives and considers the validity of the alleged link between insider trading—as opposed to other forms of informed trading—and market liquidity as a justification for the existence of regulation.

Reconsidering The Separation Of Banking And Commerce, Mehrsa Baradaran

Scholarly Works

This Article examines the long-held belief that banking and commerce need to be kept separate to ensure a stable banking system. Specifically, the Article criticizes the Bank Holding Company Act (“BHCA”), which prohibits nonbanking entities from owning banks. The recent banking collapse has caused and exacerbated several problematic trends in U.S. banking, especially the conglomeration of banking entities and the homogenization of assets. The inflexible and outdated provisions of the BHCA are a major cause of these trends. Since the enactment of the BHCA, the landscape of U.S. banking has changed dramatically, but the strict separation of banking and commerce …

Fundamental Forces Driving United States And International Financial Regulations Reform, Lawrence G. Baxter

Faculty Scholarship

Multiple forces create a systemic crisis of the proportions of the Global Financial Crisis of 2008. Global and domestic financial reform is a difficult and perplexing task, one that is likely to take many years, and one that will surely continue to be shaped by a diverse range of forces. Recent measures remain incomplete and in some cases are even proving to be misdirected. This article considers seven fundamental forces shaping actions on future reform, specifically the (1) long term impact of the Crisis (and all financial crises); (2) increase in the “financialization” of the global economy, seemingly disproportionate to …

Marginalizing Risk, Steven L. Schwarcz

Faculty Scholarship

A major focus of finance is reducing risk on investments, a goal commonly achieved by dispersing the risk among numerous investors. Sometimes, however, risk dispersion can cause investors to underestimate and under-protect against risk. Risk can even be so widely dispersed that rational investors individually lack the incentive to monitor it. This Article examines the market failures resulting from risk dispersion and analyzes when government regulation may be necessary or appropriate to limit these market failures. The Article also examines how such regulation should be designed,including the extent to which it should limit risk dispersion in the first instance.

The End Of The Internal Compliance World As We Know It, Or An Enhancement Of The Effectiveness Of Securities Law Enforcement? Bounty Hunting Under The Dodd-Frank Act's Whistleblower Provision, Justin Blount, Spencer Markel

Fordham Journal of Corporate & Financial Law

In the wake of Bernard Madoff’s $65 billion Ponzi scheme and the recent economic crisis stemming largely from loosely regulated subprime lending and mortgage-backed securities, President Obama signed the Dodd-Frank Wall Street Reform and Consumer Protection Act on July 21, 2010, signaling loudly and clearly that change is coming to Wall Street. But Wall Street is not the only one receiving a message. Buried deep within the 2,319 pages of the Dodd-Frank Act, companies can find Section 922, the whistleblower provision, which provides a bounty for whistleblowers who report securities violations to the Securities and Exchange Commission.These bounty provisions and …

Application Of The Concept Of Project Finance In Iraq- A Comparative And Analytical Study, Faris K. Nesheiwat

Fordham Journal of Corporate & Financial Law

Many scholars and experts have addressed the issue of project finance, but one area that remains without detailed examination is its legal treatment under the legal systems of developing countries. The legal concepts applied under project finance are Western and are not necessarily identical to or compatible with legal concepts in Middle Eastern countries in general or Iraq in particular. In that sense, project finance is a transplanted legal concept when examined in the Middle Eastern legal framework. Although this Paper tackles the legal and strategic issues arising from the use of project finance in Iraq, its analysis and comparative …

Burning Down The House Or Simply Rolling The Dice: A Comment On Section 621 Of The Dodd-Frank Act And Recommendation For Its Implementation, Joshua R. Rosenthal

Fordham Journal of Corporate & Financial Law

Section 621 of the Dodd-Frank Wall Street Reform and Consumer Protection Act modifies the Securities Act of 1933 to prohibit the underwriter, placement agent, initial purchaser, or sponsor, or any affiliate or subsidiary of any such entity of an asset-backed financial product from betting against that very product for one year after the product’s initial sale. The rule prohibits anyone who structures or sells an asset-backed security or a product composed of asset-backed securities from going short, in the specified timeframe, on what they have sold, and labels such transactions as presenting material conflicts of interest. This Comment discusses traces …

Beyond Microfinance: Creating Opportunities For Women At The Base Of The Pyramid, Deborah Burand

Articles

A growing number of innovative social entrepreneurs are tackling this problem by creating 'busmesses in a bag' mspired by the world's largest direct seller of beauty products - Avon. These very small franchise or consignment businesses are affordable enough to be acquired and operated by women living at the base of the economic pyramid. Just as commercial franchise networks such as Avon have helped people with httle or no experience grow mto successful business owners around the world, microfranchise and microconsignment networks may hold similar promise.

Identification Requirements And Policy In Alternative Remittance : A Measure Of Legislative Adherence, Timothy J. Smith

Theses : Honours

Money laundering is a persistent threat to the economic viability of every nation. However the intent behind this behaviour does not always converge with the criminality of the act. A study of 395 international university students in Australia demonstrated a prominent cultural and regional norm in South Asia to use untraceable ‘informal’ remittance systems. Under Australian legislation, the use of a non-compliant alternative or informal value transfer system (IVTS) is an act that predicates the laundering of money regardless of intent. Yet in line with a clear cultural proclivity and trust in money transfer businesses, it is evident that many …

Derivatives: A Twenty-First Century Understanding, Timothy E. Lynch

Faculty Works

Derivatives are commonly defined as some variation of the following: a financial instrument whose value is derived from the performance of a secondary source such as an underlying bond, commodity or index. But this definition is both over-inclusive and under-inclusive. Thus, not surprisingly, derivatives are largely misunderstood, including by many policy makers, regulators and legal analysts. It is important for interested parties such as policy makers to understand derivatives, because the types and uses of derivatives have exploded in the last few decades, and because these financial instruments can provide both social benefits and cause social harms. This Article presents …

Implementing Dodd-Frank: A Review Of The Cftc‟S Rulemaking Process: Testimony, Michael Greenberger

Congressional Testimony

The Relationship of Unregulated OTC Derivatives to the Meltdown. It is now accepted wisdom that it was the non-transparent, poorly capitalized, and almost wholly unregulated over-the-counter (“OTC”) derivatives market that lit the fuse that exploded the highly vulnerable worldwide economy in the fall of 2008. Because tens of trillions of dollars of these financial products were pegged to the economic performance of an overheated and highly inflated housing market, the sudden collapse of that market triggered under-capitalized or non-capitalized OTC derivative guarantees of the subprime housing investments. Moreover, the many undercapitalized insurers of that collapsing market had other multi-trillion dollar …

Implementation Of Title Vii Of The Wall Street Reform And Consumer Protection Act. Hearing Before The United States Senate, Committee On Agriculture, Nutrition And Forestry - 112th Cong., 1st Sess., Michael Greenberger

Congressional Testimony

The Relationship of Unregulated OTC Derivatives to the Meltdown. It is now accepted wisdom that it was the non-transparent, poorly capitalized, and almost wholly unregulated over-the-counter (―OTC‖) derivatives market that lit the fuse that exploded the highly vulnerable worldwide economy in the fall of 2008. Because tens of trillions of dollars of these financial products were pegged to the economic performance of an overheated and highly inflated housing market, the sudden collapse of that market triggered under-capitalized or non-capitalized OTC derivative guarantees of the subprime housing investments. Moreover, the many undercapitalized insurers of that collapsing market had other multi-trillion …

Economic Crisis And Share Price Unpredictability: Reasons And Implications, Edward G. Fox, Merritt B. Fox, Ronald J. Gilson

Faculty Scholarship

The volatility of share returns for individual companies increased sharply during the recent financial crisis. The larger part of this increase was due to a dramatic rise – five fold as measured by variance – in idiosyncratic risk. We find that this pattern repeats itself during each major economic reversal going back 85 years. Because idiosyncratic risk is what is involved, this increase cannot be explained by changes in predictions concerning the future course of the economy as a whole.

Our first goal is to explain why difficult economic times, which are defined in terms of market wide phenomena, make …

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 …

The Role Of Derivatives In The Financial Crisis – Testimony Before The Financial Crisis Inquiry Commission, June 30, 2010, Michael Greenberger

Congressional Testimony

It is now almost universally accepted that the unregulated multi-trillion dollar OTC CDS market helped foment a mortgage crisis, then a credit crisis, and finally a ―once-in-a-century systemic financial crisis that, but for huge U.S. taxpayer interventions, would have in the fall of 2008 led the world economy into a devastating Depression. Before explaining below the manner in which credit default swaps fomented this crisis, it worth citing in the margin those many economists, regulators, market observers, and financial columnists who have described the central role unregulated CDS played in the crisis.

Even those once skeptical of arguments about the …

The Decline Of Investment Banking: Preliminary Thoughts On The Evolution Of The Industry 1996-2008, Robert J. Rhee

UF Law Faculty Publications

In this paper, I provide a basic, preliminary financial analysis of several prominent, independent investment banks: Goldman Sachs, Morgan Stanley, Merrill Lynch, Lehman Brothers, and Bear Stearns. I provide the following data: (1) segmentation of net revenue by products and services, (2) return on average equity, (3) leverage ratio, and (4) debt to equity ratio. Although the data analysis here is very basic, it still tells an interesting narrative of the evolution of the investment banking industry. The investment banking industry has undergone significant change in the twelve-year period 1996 to 2008. In the mid-1990s, banks had a balance mix …

Systemic Regulation Of Global Trade And Finance: A Tale Of Two Systems, R. Michael Gadbaw

Georgetown Law Faculty Publications and Other Works

The recent financial crisis has put enormous strains on the global systems governing international finance and trade. These two important international regulatory systems, created after World War II to promote growth and stability in the global economy, were put to the test in ways unprecedented since the 1930s. This article seeks to analyze and compare their performance as systemic regulators in the course of the crisis and concludes that the trading system performed quite well while the financial system virtually collapsed. This article seeks to account for this difference by looking at the nature of the rules and the institutions …

Microfranchising: A Business Approach To Fighting Poverty, Deborah Burand, David W. Koch

Articles

Imagine a franchise network that trains, guides, and supports hundreds of poor women with little or no business experience to become successful business owners. Such "microfranchise" efforts, though relatively small in number, have been gathering steam in the development community and, recently, attracting the attention of the mainstream franchising indus- Deborah Burand try. Advocates have seized on microfranchising as a natural complement or follow-on to the widely acclaimed successes of the "microfinance" sector, which provides small-scale finance services to over 150 million of the world's poor. Microfranchising today is where microfinance was a decade or more ago. It is appropriate …

The Ilc And The Reconstruction Of U.S. Banking, Mehrsa Baradaran

Scholarly Works

Since the Great Depression, bank regulators in the United States have endeavored to separate banking institutions from commercial firms, believing such separation was necessary for stability and growth. The recent collapse of our financial system indicates that this premise may be false, as Industrial Loan Companies ("ILCs") – the only institutions where commercial firms are permitted to own banks – remain sound. ILCs have persisted throughout U.S. banking history through exceptions and omissions in banking legislation, but the strength and resilience they have exhibited in the current financial collapse are worth investigating and even emulating. This article examines recent controversy …

The End Of The (Virtual) World, Joshua A.T. Fairfield

West Virginia Law Review

No abstract provided.

Randomness And Complexity In Social Explanation: Evidence From Finance And Bankruptcy Law, Bernard Trujillo

Law Faculty Publications

No abstract provided.

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 …

Remapping The Charitable Deduction, David Pozen

Faculty Scholarship

If charity begins at home, scholarship on the charitable deduction has stayed at home. In the vast legal literature, few authors have engaged the distinction between charitable contributions that are meant to be used within the United States and charitable contributions that are meant to be used abroad. Yet these two types of contributions are treated very differently in the Code and raise very different policy issues. As Americans' giving patterns and the U.S. nonprofit sector grow increasingly international, the distinction will only become more salient.

This Article offers the first exploration of how theories of the charitable deduction apply …