Banking and Finance Law Commons^™

Bubbles, Busts, And Blame, Robert C. Hockett

Cornell Law Faculty Publications

I argue that financial asset price bubbles and busts, such as those we have recently experienced in the mortgage and securities markets, are compatible with market efficiency, individual rationality, and even ethically unobjectionable behavior. The reason is that they constitute classic recursively self-amplifying collective action problems, the hallmark of which is the efficient aggregation of individually rational behaviors into collectively calamitous outcomes. In the present case, individuals rationally "legged the spread" between cheap borrowing costs and credit-fueled capital gains rates, neither of which market actors could affect in their individual capacities even when knowing that credit would have eventually to …

The Volcker Rule And Evolving Financial Markets, Charles K. Whitehead

Cornell Law Faculty Publications

The Volcker Rule prohibits proprietary trading by banking entities - in effect, reintroducing to the financial markets a substantial portion of the Glass-Steagall Act’s static divide between banks and securities firms. This Article argues that the Glass-Steagall model is a fixture of the past - a financial Maginot Line within an evolving financial system. To be effective, new financial regulation must reflect new relationships in the marketplace. For the Volcker Rule, those relationships include a growing reliance by banks on new market participants to conduct traditional banking functions.

Proprietary trading has moved to less-regulated businesses, in many cases, to hedge …

Regulating Financial Innovation: A More Principles-Based Proposal?, Dan Awrey

Cornell Law Faculty Publications

Modem financial markets are characterized by complexity, seemingly perpetual innovation, chronic asymmetries of information and expertise, and pervasive agency costs. Perhaps nowhere are these characteristics-or their attendant regulatory challenges-more pronounced than within OTC derivatives markets. Mounting effective responses to these challenges must be considered amongst the most difficult and important tasks confronting financial regulators. Prescriptive, rules-based approaches toward financial regulation have thus far proven inadequate to this task. Through the utilization of outcome-oriented principles, enhanced dialogic relationships, intensive supervision, and targeted and proportional (yet vigorous) enforcement, "more principles-based" financial regulation (MPBR) manifests the potential to overcome these challenges and, in …

A Comparative Legal And Economic Approach To Third-Party Litigation Funding, Marco De Morpurgo

Cardozo Journal of International and Comparative Law

This article represents the first attempt to apply a comparative legal and economic approach to the study of third-party litigation funding (TPLF) - one of the most innovative trends in civil litigation financing today. TPLF consists of the practice where a third party offers financial support to a claimant in order to cover his litigation expenses, in return for a share of damages if the claim is successful. The third party receives no compensation if the claimant loses the suit. While such practice has been rapidly developing in the common law world (Australia, United States, and United Kingdom), in the …

Regulating Money Creation After The Crisis, Morgan Ricks

Vanderbilt Law School Faculty Publications

Like bank deposits, money market instruments function in important ways as "money." Yet our financial regulatory regime does not take this proposition seriously. The (non-government) issuers of money market instruments-almost all of which are financial firms, not commercial or industrial ones-perform an invaluable economic function. Like depository banks, they channel economic agents' transaction reserves into the capital markets. These firms thereby reduce borrowing costs and expand credit availability. However, this activity- "maturity transformation "-presents a problem. When these issuers default on their money market obligations, they generate adverse monetary consequences. This circumstance amounts to a market failure, creating a "prima …

Derivatives And The Legal Origin Of The 2008 Credit Crisis, Lynn A. Stout

Cornell Law Faculty Publications

Experts still debate what caused the credit crisis of 2008. This Article argues that dubious honor belongs, first and foremost, to a little-known statute called the Commodities Futures Modernization Act of 2000 (CFMA). Put simply, the credit crisis was not primarily due to changes in the markets; it was due to changes in the law. In particular, the crisis was the direct and foreseeable (and in fact foreseen by the author and others) consequence of the CFMA’s sudden and wholesale removal of centuries-old legal constraints on speculative trading in over-the-counter (OTC) derivatives.

Derivative contracts are probabilistic bets on future events. …

"On The Take": The Black Box Of Credit Scoring And Mortgage Discrimination, Cassandra Jones Havard

All Faculty Scholarship

Subprime credit, a relatively new method of risk-based pricing, has been hailed as a way to open up markets and provide access to credit to those who would otherwise be excluded. Evidence suggests that subprime mortgage segmentation increases rather than reduces exclusionary practices in lending. Furthermore, what is unclear is how lenders determine who qualifies as a subprime borrower. This concern became manifested when studies demonstrated that minority borrowers, regardless of creditworthiness, are more likely to receive expensive, sub-prime loans. The disparity is properly attributed to lenders’ credit pricing policies which included discretionary increases despite the objectively-determined risk-based interest rate …

The Federal Home Loan Bank System: A Vehicle For Job Creation And Job Retention, Cornelius K. Hurley, Rebecca Hicks Gallup

Faculty Scholarship

This paper discusses three proposals aimed at reorienting the mission of the System and of the FHLBanks: (1) liberalizing the System's collateral requirements to make the use of small business and other job-creation loans a more viable source of collateral for advances; (2) expanding the membership requirements of the FHLBanks to allow those financial institutions that currently lend to small businesses to become members; and (3) creating a job creation program that uses some of the best practices of the System's Affordable Housing Program. Taken together or separately, these proposals utilize the unique structure of the FHLB System as described …

Consumer Financial Protection: It's A Smaller World After All.Pdf, Hilary Allen

Scholarly Articles in Law Reviews & Journals

Few of the reforms of the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank”) have been as controversial as the creation of the Consumer Financial Protection Bureau. On the one hand, proponents envisioned the Bureau as “a single, highly motivated federal regulator, [that would apply] the same regulation … to all similar products, regardless of the identity of the lender.” On the other hand, critics have called the Bureau “fatally flawed” and suggested that it has the potential to “stifle innovation and leave some market participants worse off.”

Dodd-Frank, International Remittances, And Mobile Banking: The Federal Reserve’S Role In Enabling International Economic Development, Colin C. Richard

NULR Online

International remittances—"cross-border person-to-person payments of relatively low value" sent primarily by international migrants to family members in developing countries—alleviate poverty, support entrepreneurship, and foster the development of financial systems. Until recently, aside from prohibitions on financial interactions with countries such as Cuba or Burma, U.S. regulators have only indirectly addressed these monetary transfers. The Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank) changes this, providing direct, substantive regulation of the industry for the first time. Dodd-Frank calls on the Board of Governors of the Federal Reserve System (Board) to craft more than a dozen regulations to enforce Dodd-Frank's remittance …

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 …

The Impact Of Dodd-Frank On End-Users Hedging Commercial Risk In Over-The-Country Derivatives Markets, Laurin C. Ariail

North Carolina Banking Institute

No abstract provided.

Comparative Analysis Of Stress Testing In The United States And Europe, Alexander Abramovich

North Carolina Banking Institute

No abstract provided.

The Orderly Liquidation Authority: The Creditor's Perspective, Jamieson L. Hardee

North Carolina Banking Institute

No abstract provided.

The Swaps Push-Out Rule: An Impact Assessment, Christopher T. Fowler

North Carolina Banking Institute

No abstract provided.

Rating Agency Reform: Presenting The Registered Market For Asset-Backed Securities, Benjamin H. Brownlow

North Carolina Banking Institute

No abstract provided.

The Dodd-Frank Act: Tarp Bailout Backlash And Too Big To Fail, Lissa Lamkin Broome

North Carolina Banking Institute

No abstract provided.

Dodd-Frank Regulatory Innovation, And The Safety Of Consumer Financial Products, Melissa B. Jacoby

North Carolina Banking Institute

No abstract provided.

Stock Broker Fiduciary Duties And The Impact Of The Dodd-Frank Act, Thomas Lee Hazen

North Carolina Banking Institute

No abstract provided.

The Volcker Rule's Unintended Consequences, Ryan K. Brissette

North Carolina Banking Institute

No abstract provided.

Justifying Board Diversity, James A. Fanto, Lawrence M. Solan, John M. Darley

Faculty Scholarship

No abstract provided.

Establishing Appropriate Liability Under The Fair And Accurate Credit Transactions Act, Mignon M. Arrington

North Carolina Banking Institute

No abstract provided.

Banktown: Assessing Blame For The Near-Collapse Of Charlotte's Biggest Banks, Brian Choi

North Carolina Banking Institute

No abstract provided.

The Dodd-Frank Act: A New Deal For A New Age, Saule T. Omarova

North Carolina Banking Institute

No abstract provided.

Dodd-Frank's Requirement Of Skin In The Game For Asset-Backed Securities May Scalp Corporate Loan Liquidity, David Line Batty

North Carolina Banking Institute

No abstract provided.

Peer-To-Peer Lending In The United States: Surviving After Dodd-Frank, Jack R. Magee

North Carolina Banking Institute

No abstract provided.

Ability To Repay: Mortgage Lending Standards After Dodd-Frank, Zachary B. Marquand

North Carolina Banking Institute

No abstract provided.

Neil Barofsky's Sig Tarp: Difficult, Rigorous, And Independent Oversight Of The Tarp, Samuel R. Diamant

North Carolina Banking Institute

No abstract provided.

Home Mortgage Lending: Past, Present, And Future, Joseph A. Smith Jr.

North Carolina Banking Institute

No abstract provided.

A Wal-Mart-Owned Ilc: Why Congress Should Give The Green Light, Charles Kabugo-Musoke

North Carolina Banking Institute

No abstract provided.