Banking and Finance Law Commons^™

Financial Regulatory Reform And Private Funds, Anita Krug

All Faculty Scholarship

This white paper comments on the Obama administration's June 2009 proposal for the regulation of hedge fund investment advisers.

Financial Market Failure As A Crisis In The Rule Of Law: From Market Fundamentalism To A New Keynesian Regulatory Model, Timothy A. Canova

Faculty Scholarship

This article considers the financial panic of 2008 in historical context by analyzing the institutional and regulatory factors that contributed to the financial and economic crisis. The move away from a Keynesian regulatory model was a function of larger institutional flaws. The Keynesian regime of command-and-control regulation focused on macroeconomic policy objectives designed to achieve full employment, more equitable distributions of wealth and income, greater transparency in the regulatory process, and reduction in monopoly exploitation of consumers. Central to this regime was a model of central banking that required greater accountability to elected branches of government and the use of …

Demand-Side Gatekeepers In The Market For Home Loans, Edward J. Janger, Susan Block-Lieb

Faculty Scholarship

No abstract provided.

Coming Out Of Conservatorship: Developing An Exit Strategy For Fannie And Freddie, David J. Reiss

Cornell Law Faculty Working Papers

This brief article reviews the various policies that the Obama Administration can choose from as it considers how Fannie Mae and Freddie Mac should exit conservatorship. It first reviews the benefits and costs associated with the two companies. It then reviews four broad positions regarding the appropriate role of Fannie and Freddie in the housing finance market. It argues that the two companies should be privatized because Fannie and Freddie pose a systemic risk to the financial system, unfairly benefit from their regulatory privilege and do not create net benefits for the American people. Finally, it reviews four concrete plans …

Risks, Rules, And Institutions: A Process For Reforming Financial Regulation, Saule T. Omarova, Adam Feibelman

Cornell Law Faculty Publications

It is fair to say that reforming the regulation of the financial sector is currently one of the most hotly debated issues on the policymaking agenda. Proposals for such reform are proliferating, and the official sector appears committed to adopting at least some meaningful reforms in the near-term. Broadly speaking, this movement toward regulatory reform emphasizes the need for structural reforms, outlines specific rules and regulations targeting primarily the perceived causes of the current crisis, and is carried along by a strong sense of the moment. Rather than add to the body of institutional and substantive proposals, this Article articulates …

The Quiet Metamorphosis: How Derivatives Changed The "Business Of Banking", Saule T. Omarova

Cornell Law Faculty Publications

In the wake of an unprecedented global financial crisis, one of the fundamental questions preoccupying policymakers and students of financial regulation worldwide is "How did we get here?" This Article uncovers and analyzes an important part of our recent regulatory history, which provides a key to understanding some of the deeper, hidden causes of the crisis but whose significance legal scholars have so far failed to appreciate.

The Article examines interpretive letters issued by the Office of the Comptroller of the Currency (OCC), the primary regulator of federally chartered U.S. banks, interpreting the National Bank Act of 1863 to allow …

The Digital Currency Doppelganger: Regulatory Challenge Or Harbinger Of The New Economy?, Peter C. Tucker

Cardozo Journal of International and Comparative Law

The note argues that enacting new restrictive regulations for digital currencies in the United States is unnecessary and potentially counterproductive. It posits that existing anti-money laundering (AML) regulations are sufficient to address illicit activities associated with digital currencies. The author advocates for a wait-and-see approach, emphasizing the need for international coordination and the risks of driving the industry offshore, which could reduce regulatory oversight and tax revenue.

The Aig Bailout, William K. Sjostrum, Jr.

Washington and Lee Law Review

On February 28, 2008, American International Group, Inc., the then largest insurance company in the United States, announced 2007 earnings of $6.20 billion or $2.39per share. Its stock closed that day at $50.15 per share. Less than seven months later, however, AIG was on the verge of bankruptcy and had to be rescued by the United States government through an $85 billion loan. Government aid has since grown to $182.5 billion, and AIG's stock recently traded at less than $1.00 per share. The Article explains why AIG, a company with $1 trillion in assets and $95.8 billion in shareholders' equity, …

Massachusetts Zappers - Collecting The Sales Tax That Has Already Been Paid, Richard Thompson Ainsworth

Faculty Scholarship

No other New England state is as vulnerable to Zappers as is the State of Massachusetts. Zappers and related software programming, Phantom-ware, facilitate an old tax fraud – skimming cash receipts. In this instance skimming is performed with modern electronic cash registers (ECRs).

Zappers are a global revenue problem, but to the best of this author’s knowledge they have not been uncovered in Massachusetts. A global perspective says: it is highly unlikely that Zappers are not in the Commonwealth – we just need to find them. In fact, using a Quebec template, tax losses from Zappers and related frauds in …

The U.S. Economic Crisis: Another "Lost Decade"?, Paula Chungsathaporn

Honors College Theses

America is experiencing the worst economic downturn since the Great Depression originating with problems from mortgage backed securities and seeping into every major sector in the economy. We have witnessed the downfall or government takeover of some of the most powerful companies in the country, contributing to the highest unemployment rate America has seen in decades. During the 1990s, Japan experienced what is commonly referred to as “the lost decade,” a period of prolonged stagnant growth. Many similarities can be drawn between the current U.S. crisis and the Japanese crisis of the late 90s. The macroeconomic conditions that caused the …

Code, Crash, And Open Source: The Outsourcing Of Financial Regulation To Risk Models And The Global Financial Crisis, Erik F. Gerding

Washington Law Review

The widespread use of computer-based risk models in the financial industry during the last two decades enabled the marketing of more complex financial products to consumers, the growth of securitization and derivatives, and the development of sophisticated risk-management strategies by financial institutions. Over this same period, regulators increasingly delegated or outsourced vast responsibility for regulating risk in both consumer finance and financial markets to these privately owned industry models. Proprietary risk models of financial institutions thus came to serve as a “new financial code” that regulated transfers of risk among consumers, financial institutions, and investors. The spectacular failure of financial-industry …

Financial Crisis Containment, Anna Gelpern

Scholarly Articles in Law Reviews & Journals

This Article maps financial crisis containment - extraordinary measures to stop the spread of financial distress - as a category of legal and policy choice. I make three claims.

First, containment is distinct from financial regulation, crisis prevention and resolution. Containment is brief; it targets the immediate term. It involves claims of emergency, rule-breaking, time inconsistency and moral hazard. In contrast, regulation, prevention and resolution seek to establish sound incentives for the long term. Second, containment decisions deviate from non-crisis norms in predictable ways, and are consistent across diverse countries and crises. Containment invariably entails three kinds of choices: choices …

Vat Derogations In Germany, Austria, Denmark, And Estonia: Use And Enjoyment Rules, Richard Thompson Ainsworth

Faculty Scholarship

When the Czech Republic elected (effective January 1, 2009) to derogate from the standard rules for determining the place of supply for intangible services, pursuant to Article 58 of the Recast VAT Directive (RVD), it was following the lead of ten other Member States. This paper considers four of those other jurisdictions - Germany, Austria, Estonia, and Denmark - and compares their derogations with that of the Czech Republic.

In each instance a use and enjoyment standard determines the place of supply for certain intangible services. The affected transactions are (potentially) wide ranging. In each instance non-EU countries are on …

Banking Supervision And Its Regulations — Comparative Study Between U.S. And China, Han Deng

Cornell Law School Inter-University Graduate Student Conference Papers

The health of the economy and the effectiveness of monetary policy depend on a sound financial system. A smoothly functioning banking supervision regime is one of the cornerstones of any financial system. Only a stable financial system, which is one of the key aims of state regulation and oversight, can optimally fulfill its macroeconomic function of efficient and low-cost transformation and provision of financial resources. A global financial meltdown will affect the livelihoods of almost everyone in an increasingly inter-connected world. The primary goals of supervision and regulations include protecting depositors' funds, maintaining a stable monetary system, promoting an efficient …

Do Individual Investors Affect Share Price Accuracy? Some Preliminary Evidence, Alicia Davis Evans

Law & Economics Working Papers Archive: 2003-2009

A common belief is that individual investors are noise traders that distort stock prices. Because accurate share prices are important for economic functioning, the market effect of retail investors has significant regulatory implications. This paper, employing a new NYSE retail trading data set and the R2 metric of share price informedness, contributes to the debate by demonstrating that as the proportion of trading by individual investors increases, the R2 of firms decreases. Adherents of the R2 methodology hold that lower R2's imply more accurate stock prices. The results of an instrumental variable estimation suggest that this relationship is a causal …

Lincoln's Populist Sovereignty: Public Finance Of, By, And For The People, Timothy A. Canova

Faculty Scholarship

No abstract provided.

The Evolution Of Debt: Covenants, The Credit Market, And Corporate Governance, Charles K. Whitehead

Cornell Law Faculty Publications

No abstract provided.

Principles, Prescriptions, And Polemics: Regulating Conflicts Of Interest In The Canadian Investment Fund Industry, Dan Awrey

Dalhousie Law Journal

Conflicts ofinterest permeate the Canadian investment fund industry. In response, securities regulators have promulgated National Instrument 81-107 Independent Review Committee for Investment Funds. In the view of securities regulators, NI 81-107 reflects a "principles-based" approach toward the regulation of conflicts of interest. This Article articulates a theoretical conception of principles-based securities regulation, one which transcends the formalism of the traditional "rules" versus "principles" debate to reveal a new regulatory paradigm. Thereafter, the author explores whether and to what extent NI 81-107 truly reflects this principlesbased paradigm, manifesting the potential to tap into its inherent wisdom while at the same time …

Changes To The Czech Republic's Vat Act: The Use And Enjoyment Rules, Richard Thompson Ainsworth

Faculty Scholarship

On January 1, 2009 a minor change in the Czech Republic VAT became effective. A use and enjoyment standard was added to modify the sourcing of certain service transactions. Traditional proxy-based rules, derived from Articles 43 and 56(1) of the Recast VAT Directive (RVD), are set aside by this modification when the customer receiving the services has a permanent establishment (PE) in the Czech Republic. The modification is authorized by RVD 58.

This change is a limited adoption of RVD 58(b), and functions like a full force of attraction principle in direct taxation. If caught by these rules, transactions that …

The G20 And Sustainable Imf Reform, Daniel D. Bradlow

Working Papers

This article explores the problems with the current arrangements for international financial governance and the prospects for the IMF being sufficiently reformed to play an effective role in future arrangements for international financial governance. It proposes that the G20 initiate a multi-step process of reform.

Bank Supervision And Regulation: Hearing Before The S. Comm. On Banking, Housing And Urban Affairs, 111th Cong., Mar. 19, 2009 (Statement Of Daniel K. Tarullo, Geo. U. L. Center), Daniel K. Tarullo

Testimony Before Congress

No abstract provided.

Fannie Mae And Freddie Mac And The Future Of Federal Housing Finance Policy: A Study Of Regulatory Privilege, David J. Reiss

Cornell Law Faculty Working Papers

The federal government recently placed Fannie Mae and Freddie Mac, the government-chartered, privately owned mortgage finance companies, in conservatorship. These two massive companies are profit-driven, but as government-sponsored enterprises they also have a government-mandated mission to provide liquidity and stability to the United States mortgage market and to achieve certain affordable housing goals. How the two companies should exit their conservatorship has implications that reach throughout the global financial markets and are of key importance to the future of American housing finance policy.

While the American taxpayer will be required to fund a bailout of the two companies that will …

The Regulatory Response To Madoff, Anita Krug

All Faculty Scholarship

This white paper evaluates investor protection mechanisms in the securities regulatory regime at the time the Madoff fraud was exposed. It considers whether the post-Madoff call for additional regulation of hedge funds and/or their managers - and/or their respective activities - was warranted.

The New Crisis For The New Century: Some Observations On The Big-Picture Lessons Of The Global Financial Crisis Of 2008, Saule T. Omarova

North Carolina Banking Institute

No abstract provided.

Loan Modifications: Turbulent Times - Troublesome Topics, J. Thomas Dunn Jr.

North Carolina Banking Institute

No abstract provided.

Wall Street Meets Main Street: Understanding The Financial Crisis, Eamonn K. Moran

North Carolina Banking Institute

No abstract provided.

The Decline And Fall Of Indymac How Deteriorating Economic Conditions, Inadequate Responses To Those Conditions, And The Senior Senator From New York Caused One Of The Largest Bank Failures In United States History, Jason Moran-Bates

North Carolina Banking Institute

No abstract provided.

North Carolina Leads Again: Loan Servicing Amendments To The Mortgage Lending Act, Donald C. Lampe

North Carolina Banking Institute

No abstract provided.

Whither Wachovia - Wells Fargo Wins The Battle For The Storied North Carolina Banking Institution, Frank A. Hirsch Jr., Joseph S. Dowdy

North Carolina Banking Institute

No abstract provided.

Reverse Mortgages: Changes Brought About By The Housing And Economic Recovery Act, Annie E. Nelson

North Carolina Banking Institute

No abstract provided.