Banking and Finance Law Commons^™

Politics In Securities Enforcement, Urska Velikonja

Georgia Law Review

American securities enforcement agencies often face charges that they use their enforcement power to further political goals.' Most recently, Standard & Poor's credit rating agency claimed that the U.S. Department of Justice unfairly singled it out for prosecution for fraudulent credit ratings after it downgraded U.S. sovereign debt. The U.S. Securities and Exchange Commission (SEC or the Commission), too, has been accused of using its enforcement politically: of bringing enforcement actions to improve its political standing, to punish its detractors, or to deflect attention from negative reports about its activities; and of holding back investigations of politically-connected figures.

The Financial Industry's Plan For Resolving Failed Megabanks Will Ensure Future Bailouts For Wall Street, Arthur E. Wilmarth Jr.

Georgia Law Review

Wall Street has achieved a remarkable political comeback from the financial crisis of 2007-2009. Public anger over bailouts of large financial institutions spurred Congress to pass the Dodd- Frank Wall Street Reform and Consumer Protection Act (Dodd- Frank) in July 2010.1 Megabanks, however, used their political influence to weaken Dodd-Frank's provisions, and they have pursued a determined campaign since 2010 to undermine Dodd- Frank's implementation. A primary goal of Dodd-Frank is to end "too big to fail" (TBTF) treatment for systemically important financial institutions (SIFIs) and their creditors. During the debates over Dodd-Frank, however, Wall Street defeated two major initiatives …

Bank Regulation And Securitization: How The Law Improved Transmission Lines Between Real Estate And Banking Crises, Erik F. Gerding

Georgia Law Review

Financial crises take many forms. Real estate crises can devastate economies.' So too can bank crises. Stock market crashes can precipitate crises of their own. The "subprime crisis" represents the confluence and worst of all three; like three cyclones merging together in warm offshore waters, these three kinds of crises generated even more destructive force when conjoined. The panic that took shape in U.S. real estate and capital markets in 2007 represents another example in a long historical line of intertwined banking and real estate crises. Securitization served as a new coupling rod joining cycles in real estate and banking …

Regulating Angels, Heidi M. Schooner

Georgia Law Review

Since the Financial Crisis, a common narrative casts the largest, too-big-to-fail (TBTF) banks as villains1 and community banks as darlings. On the one hand is the image of the infamous mega banks that brought the economy to its knees and continue to profit while the rest of society sputters, and on the other hand is the angelic community banker (think Jimmy Stewart in It's a Wonderful Life) working tirelessly to provide the last bastion of hope for small, job-creating, businesses and other worthy borrowers. Advocates for these innocent small banks point to the crushing regulatory burden imposed on institutions that …

The Risks Of Shadow Insurance, Daniel Schwarcz

Georgia Law Review

Shadow banking - often defined as financial intermediation that provides maturity transformation outside of the formal confines of a bank'-played a central role in causing the 2008 financial crisis. For this reason, a 2013 report of the New York Department of Financial Services generated substantial controversy when it labeled some life insurers' practices of reinsuring insurance policies with affiliated captive insurers as "shadow insurance." Yet the moniker of shadow insurance was not without at least some justification. Like shadow banking, life insurers' reinsurance of policies with affiliated captives is a form of regulatory arbitrage that moves traditional insurance risks from …

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

Georgia Law Review

Let's pause here and note what this moment represented. For the first time, the [Federal Open Market] Committee was using communication-mere words-as its primary monetary policy tool. Until then, it was probably common to think of communication about future policy as something that supplemented the setting of the federal funds rate. In this case, communication was an independent and effective tool for influencing the economy. The FOMC had journeyed from "never explain" to a point where sometimes the explanation is the policy. - Janet L. Yellen'

In late 2008, as the full impact the Global Financial Crisis would have on …

Post-Crisis Reform Of The Supervisory System And High Reliability Theory, Robert F. Weber

Georgia Law Review

Post-crisis reforms of the financial supervisory system have focused on improving the resilience of individual firms and promoting containment of problems in the event that an individual firm does fail. Both resilience and containment are hallmarks of "high reliability organizations" (HROs), a class of organizations distinguished by their ability to maintain reliable performance in dynamic operating conditions.' In the organizational context, resilience is about making organizations more robust to unexpected problems and stresses, and able to maintain performance across a wide range of unanticipated stressed outcomes. Containment is about isolating organizational failures so that when they occur, they do not …

The Evolving Role Of Economic Analysis In Sec Rulemaking, Joshua T. White

Georgia Law Review

Recently, the SEC has come under great scrutiny for how it conducts economic analysis around rulemakings, especially those associated with the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank or the Dodd-Frank Act) Dodd-Frank tasked the SEC with more than 100 rulemaking provisions. Perhaps no criticism had a more profound effect than the D.C. Circuit's decision in Business Roundtable v. SEC, which struck down the SEC's proxy access rule due to inadequate economic analysis.

Regulations are imperfect. They cannot be costlessly executed or enforced. Regulators also lack full information on the actual costs and benefits of proposed policies. For …

The Nonfinancial Returns Of Crowdfunding, Andrew A. Schwartz

Publications

Securities crowdfunding — the sale of unregistered securities to the public over the Internet — has come under attack before it has even begun. Legal scholars in particular have expressed concern that investors will lose any money they invest in crowdfunding companies. Even assuming that this may be true from a purely financial perspective, these critics are missing an important point: Crowdfund investors with negative returns will not simply have lost their money, but rather they will have spent it (at least in part) on nonpecuniary benefits, including entertainment, political expression and community building. These nonfinancial returns of crowdfunding are …

Bank Regulation And Securitization: How The Law Improved Transmission Lines Between Real Estate And Banking Crises, Erik F. Gerding

Publications

This essay examines how securitization served as a new coupling rod joining cycles in real estate and banking markets and created a new pathway for financial contagion in the “subprime” financial crisis. Legal changes promoted the growth of securitization and improved this crisis transmission line. The essay examines the history of legislative and regulatory changes that facilitated bank participation in the markets for mortgage-backed securities. The essay then explains how securitization failed to mitigate the credit, liquidity, and interest rate risk associated with real estate when losses in residential markets became correlated nationwide. It then discusses how regulation contributed to …

Private And Public Ordering In Safe Asset Markets, Anna Gelpern, Erik F. Gerding

Publications

An influential literature in economics explores the phenomenon of “safe assets” – when participants across financial markets act “as if” certain debt is risk free – as well as its role in the global financial crisis and its implications for post-crisis reform.

We highlight the role of private ordering in constructing safe assets. Private ordering, including contractual devices and transaction structures, contributes to the creation of these debt contracts, to their collective treatment in financial markets as low risk investments, and to the making of deep and liquid markets in them. These contracts and transaction structures also provide a template …

Quarterback By Committee: A Response In Memory Of Dan Markel, Andrew A. Schwartz

Publications

In Catalyzing Fans, Dan Markel, Michael McCann and Howard Wasserman propose so-called “Fan Action Committees” (“FACs”), whereby fans would crowdfund a sum of money and then spend it to influence the personnel decisions of their favorite teams. This Response — dedicated to the memory of Dan Markel — suggests that an effective FAC could upset a team’s overall hiring and compensation system, thereby risking a downturn in team performance to the detriment of all concerned.

The Digital Shareholder, Andrew A. Schwartz

Publications

Crowdfunding, a new Internet-based securities market, was recently authorized by federal and state law in order to create a vibrant, diverse, and inclusive system of entrepreneurial finance. But will people really send their money to strangers on the Internet in exchange for unregistered securities in speculative startups? Many are doubtful, but this Article looks to first principles and finds reason for optimism.

Well-established theory teaches that all forms of startup finance must confront and overcome three fundamental challenges: uncertainty, information asymmetry, and agency costs. This Article systematically examines this “trio of problems” and potential solutions in the context of crowdfunding. …

Through The Looking Glass To A Shared Reflection: The Evolving Relationship Between Administrative Law And Financial Regulation, Gillian E. Metzger

Faculty Scholarship

Administrative law and financial regulation have an uneasy relationship today. It was not always so. Indeed, the two were closely intertwined at the nation's birth. The Treasury Department was a major hub of early federal administration, with Alexander Hamilton crafting the first iterations of federal administrative law in his oversight of revenue generation and customs collection. One hundred and fifty years later, administrative law and financial regulation were conjoined in the New Deal's creation of the modern administrative state. This time it was James Landis, Chair of the newly formed Securities and Exchange Commission (SEC) and author of the leading …

The Future Of Direct Finance: The Diverging Paths Of Peer-To-Peer Lending And Kickstarter, Kathryn Judge

Faculty Scholarship

For centuries, the trend has been toward longer and more complex intermediation chains in a wide array of contexts. The growing length and complexity of intermediation chains were both the by-products and drivers of ever-greater globalization and specialization. In recent years, however, there has been a shift in the opposite direction. In a variety of markets, suppliers and consumers increasingly transact directly with one another. Many of these developments have arisen from technological innovations that reduce search costs and other hurdles to transacting, like verifying information and negotiating the terms of a transaction. Airbnb, Etsy, and their kin, for example, …

Putting The 'Financial Stability' In Financial Stability Oversight Council, Hilary Allen

Scholarly Articles in Law Reviews & Journals

For all the ink that has been spilled on the topic of financial regulation since the financial crisis of 2007-2008, there has been little examination of the competing normative goals of financial regulation. Should the financial system be treated as an end in itself such that the efficiency of that system is the primary goal? Or should financial regulation instead treat the financial system as a means to the end of broader economic growth? This Article argues for the latter approach, and stakes out the controversial normative position that financial stability, rather than efficiency, should be the paramount focus of …

Sustainability And Infrastructure Investment: National Development Banks In Africa, Daniel D. Bradlow, Christopher Strong Humphrey

Scholarly Articles in Law Reviews & Journals

The need for infrastructure finance in Africa is tremendous. A 2009 report by the World Bank suggests that the continent faces needs of US$93 billion per year. More recent studies, pointing to economic and population growth trends and using more sophisticated methods of assessing needs, indicate that infrastructure needs are actually much higher. Existing financing sources have not been able to keep pace.

In this context, the role of national development banks (NDBs) in the continent merits attention. As will be shown below, many African countries have NDBs, although the vast majority are quite small, with limited access to finance …

Equity's Unstated Domain: The Role Of Equity In Shaping Copyright Law, Shyamkrishna Balganesh, Gideon Parchomovsky

Faculty Scholarship

As used today, the term “equity” connotes a variety of related, but nonetheless distinct, ideas. In most contexts, equity refers to the body of rules and doctrines that emerged in parallel with the common law, and which merged with the common law by the late nineteenth century. At a purely conceptual level, some trace the term back to Aristotle’s notion of epieikeia, or the process of infusing the law with sufficient flexibility to avoid injustice. Lastly, at a largely practical level, a few treat equity as synonymous with a set of remedies that courts can authorize, all of which …

The Duty To Manage Risk, A. Christine Hurt

Faculty Scholarship

No abstract provided.

4th And 205: How A Rush Of Global Comments Blocked The Sec’S First Attempted Punt Of Attorney-Client Privilege Under Sarbanes-Oxley, John Paul Lucci

Touro Law Review

No abstract provided.