Money as Infrastructure

Traditional infrastructure regulation—the law of regulated industries—rests atop three pillars: rate regulation, entry restriction, and universal service. This mode of regulation has typically been applied to providers of network-type resources: resources that are optimally supplied as integrated systems. The monetary system is such a resource; and money creation is the distinctive function of banks. Bank regulation can therefore be understood as a subfield of infrastructure regulation. With few exceptions, modern academic treatments of banking have emphasized banks’ intermediation function and downplayed or ignored their monetary function. Concomitantly, in recent decades U.S. bank regulation has strayed from its infrastructural roots. This regulatory drift has been unwise

Guarantor of Last Resort: Is There a Better Alternative?

What should the government’s financial-crisis-response toolkit consist of? How should we think about its optimal scope and design? In Kate Judge offers a novel perspective on these questions. At a high level she agrees with Summers, Bernanke, Paulson, and Geithner that the existing toolkit is inadequate. In this respect she joins a number of other legal scholars and commentators. . . The day after Lehman’s bankruptcy, Ken Rogoff—among the world’s leading experts on financial crises—wrote an op-ed titled “No More Creampuffs.” He applauded regulators for letting Lehman fail and “forc[ing] some discipline onto the system.” (To be fair, Rogoff acknowledged that “the risks are very real” and that “there really is no telling where the unprecedented failure of a big investment bank might lead”—but this is exactly my point.) Another prominent economist, Vincent Reinhart, opined that same day that “Lehman did not cast a long enough shadow over markets to warrant support.”[3] It is easy to identify risks in hindsight, much harder ahead of time. Because a large, interconnected financial institution’s failure may imperil the financial system as a whole, such an institution would seemingly always be eligible for EGA support if on the brink of default—simply its size and interconnectedness. The distinction between “idiosyncratic” and “systemic” comes close to collapsing in these cases. The larger and more interconnected the institution, the more likely it will get a lifeline. And if the likelihood of support is an increasing function of size and complexity, firms have incentives to get bigger and more complex. This is a problem not just for Judge’s EGA proposal but for any system of discretionary public support for financial firms

Deal Breakage in Domestic and Cross-Border Mergers

This Article presents a newly constructed mergers and acquisitions (M&A) data set that can support detailed analysis of deal outcomes, including deal breakage. The main novelty of the data set is a detailed classification scheme for characterizing deal outcomes, using information drawn from public announcements and news reports. The data set also includes a number of variables, hand gathered from press releases and merger agreements, that are unavailable in existing data sets in reliable form, or at all. The data set consists of all definitive, signed M&A transactions involving US public company targets with a deal value of at least $1 billion from 1996 to 2018. The data set excludes negotiations, hostile bids, and unsolicited offers not resulting in a definitive transaction, which cannot be compared apples to apples with deals involving definitive agreements

A Simpler Approach to Financial Reform

There is a growing consensus that new financial reform legislation may be in order. The Dodd-Frank Act of 2010, while well-intended, is now widely viewed to be at best insufficient, at worst a costly misfire. Members of Congress are considering new and different measures. Some have proposed substantially higher capital requirements for the largest financial firms; others favor an updated version of the old Glass-Steagall regime. This paper offers up a simpler approach, one that centers around the financial sector’s short-term funding. The simpler approach would be compatible with other financial stability reforms, but it is better understood as a substitute for Dodd-Frank and other measures

Rebuilding Banking Law: Banks as Public Utilities

Under the New Deal framework for money and payments — which had its roots in the National Bank Act of 1864 — banks in the United States were governed in many respects as public utilities. Charters were available only where they were consistent with public convenience and need, the usual standard for utilities. Banks enjoyed an exclusive privilege to augment the money supply, maintaining deposit account balances that house-holds and businesses could use as a means of payment and store of value. Banks were largely limited to conducting activities consistent with their monetary purpose. Geographic expansion was constrained to promote ad-equate service to local communities. And a government agency, the Federal Reserve, regulated the quantity of bank money in circulation and set the interest that accrued to its holders. The result was an unprecedented period of overall financial stability that lasted more or less until 2008. Unfortunately, policymakers have steadily undermined and degraded key elements of this system, and now its logic has been largely forgotten. Deposit alternatives — financial products that as a formal, legal matter are distinct from bank deposits but that function like them in practice — match or exceed deposits in value, and the country’s once-diffuse banking system has given way to a top-heavy financial architecture in which a handful of complex conglomerates engage in a broad range of monetary and non-monetary financial activities with little meaningful government oversight. Although policymakers dramatically expanded regulation after the 2008 financial crisis, we still face rolling panics, a central bank committed to backstopping much of private finance, massive rent extraction by Wall Street, and democratic decline. This paper offers a blueprint for reform: what we call a New National Banking system. Our goal is part restoration, part innovation. We aim to both renew the framework that undergirded American prosperity in the twentieth century and refine it by improving access to bank services and carrying through on the law’s public utility vision where previous policy-makers came up short. The proposal is structural, not technocratic — banking law, not “finreg.” Consequently, it is conceptually and legally simple: it involves fairly surgical changes and can be implemented through a series of incremental adjustments, which we delineate herein

Federal Corporate Law and the Business of Banking

The only profit-seeking business enterprises chartered by a federal government agency are banks. Yet there is barely any scholarship justifying this exception to state primacy in U.S. corporate law. This Article addresses that gap. It reinterprets the National Bank Act (NBA) the organic statute governing national banks, the heavyweights of the financial sec- tor-as a corporation law and recovers the reasons why Congress wrote this law: not to catalyze private wealth creation or to regulate an existing industry, but to solve an economic governance problem. National banks are federal instrumentalities charged with augmenting the money supply-- a delegated sovereign privilege. Congress recruited private shareholders and managers to run these instrumentalities as a check on monetary overissue and to prevent politicized asset allocation by government officials-a form of premodern agency independence. Viewing the NBA as a corporation law yields surprising dividends. First, it exposes a major flaw at the heart of U.S. banking jurisprudence. In recent decades, the Supreme Court and the Office of the Comptroller of the Currency (OCC), the chartering authority for national banks, have interpreted national banks\u27 corporate powers expansively, allowing them to enter a vast range of new business lines. But the corporate powers provision of the NBA is not a regulatory statute to which courts should apply Chevron deference, nor is it part of the OCC\u27s enabling act. It is part of the corporate charters of national banks. Accordingly, the opposite, settled rule of construction applies: ambiguity is construed strictly against the corporation. Second, interpreting the NBA as a corporation law reveals that the OCC\u27s current campaign to unhitch national bank charters from the deposit business lacks a statutory basis and threatens an unprecedented colonization of U.S. enterprise law by a federal government agency that is ill-suited to this mission and was never congressionally tasked with it

Tech Platforms and the Common Law of Carriers

Ever since Justice Clarence Thomas observed in a concurrence that tech platforms like Twitter were analogous to common carriers, there has been increasing interest in the possibility of regulating them under common carrier principles. Most of the conversation has centered on potential legislation, not on applying the common law’s common carrier obligations to big tech. Indeed, when Ohio sued Google under the common law’s common carrier principles, commentators called the lawsuit “bizarre.” In this Article, we argue that far from being “bizarre,” tech platforms are and should be subject to liability at common law for violating the duties of common carriers. After describing the core substantive elements of the common law of carriers—equal access rules, just and reasonable pricing, and reasonable deplatforming—we then show how it applies to operating systems, online marketplaces, search, social media, and virtual reality and the metaverse. Among other things, this analysis demonstrates that common carriage applies across multiple domains and is most clearly applicable in business-to-business contexts. With respect to social media, we conclude that while common carriage principles apply, they allow for reasonable deplatforming—which may cut against what we suspect are the motivations of some proponents of regulation. And we argue that the common law of carriers could offer an opportunity to prevent a Wild West in new and emerging platforms, like the metaverse. In light of this analysis, the real puzzle is why there are so few suits against tech platforms under the common law of carriers

Foreword to Revisiting the Public Utility Symposium: Revisiting the Public Utility

In Munn v. Illinois the U.S. Supreme Court upheld state price regulation of grain elevators. The Court took some inspiration from Lord Mathew Hale\u27s notion that a business affected with a public interest requires special regulatory attention. Every ferry, Lord Hale wrote in the Seventeenth Century, ought to be under public regulation, to wit: that it give attendance at due time, keep a boat in due order, and take a reasonable toll

Regulation and the Geography of Inequality

We live in an era of widening geographic inequality. Around the country, the spread between economically and culturally thriving places and those that are struggling has been increasing. Superstar cities like New York, San Francisco, Boston, and Atlanta continue to attract talent and grow, while the economies of other cities and rural areas are left behind. Troublingly, escalating geographic inequality in the United States has arrived hand in hand with serious economic, social, and political problems. Areas that are left behind have not only failed to keep up with their thriving peers; in many ways, they have stagnated and seen opportunities evaporate. At the same time, superstar cities are running up against extreme housing affordability problems, rendering middle- class life all but unsustainable. To make matters worse, the widening gulf between dynamic and stagnant places increasingly feeds into a democratic crisis of unrepresentative government at the federal level. The dominant explanations for widening geographic inequality focus largely on inexorable economic trends. Forces like agglomeration effects and globalization have reshaped the economy, benefitting some areas and harming others. We think these explanations leave out a crucial factor: the effects of specific regulatory choices on economic geography. The Progressive Era and New Deal regulatory order in the United States promoted geographic dispersion of economic activity. The unraveling of this regulatory order around 1980 coincided with the reversal in geographic convergence and the beginning of an era of growing divergence. More specifically, regulatory policies in the areas of transportation, communications, trade, and antitrust helped construct an era of geographic convergence in the mid-twentieth century, and deregulation in those same areas contributed to the rise of geographic inequality over the last generation. Though the COVID-19 pandemic has produced unprecedented awareness of and interest in remote work- raising the possibility of greater economic dispersion-the extent to which this potential can be realized will likely also depend upon regulatory choices. To combat geographic inequality and its attendant downsides, we make the case for reincorporating geographic factors into federal regulatory policymaking in transportation, communications, trade, antitrust, and other domains

FedAccounts: Digital Dollars

We are entering a new monetary era. Central banks around the world— spurred by the development of privately controlled digital currencies as well as competition from other central banks—have been studying, building, and, in some cases, issuing central bank digital currency (“CBDC”). Although digital fiat currency is one of the hottest topics in macroeconomics and central banking today, the discussion has largely overlooked the most straightforward and appealing strategy for implementing a U.S. dollar-based CBDC: expanding access to bank accounts that the Federal Reserve already offers to a small, favored set of clients. These accounts consist of entries in a digital ledger—like other digital currencies—and are extremely desirable, offering high interest, instant payments, and full government backing with no limit. But U.S. law restricts these accounts to an exclusive clientele consisting primarily of banks. Privileged access to these accounts creates a striking asymmetry at the core of our monetary framework: government-issued physical currency is available to all, but government-issued digital currency (in the form of central bank accounts) is not. This dichotomy is unwarranted. Congress should authorize the Federal Reserve to give everyone—individuals, businesses, and institutions—the option to maintain accounts at the central bank. We call these accounts FedAccounts. Unlike the CBDC approaches currently under discussion, which would use complicated and inefficient distributed ledger technology and be walled off from the existing system of money and payments, FedAccounts would be seamlessly interoperable with the mainstream payment system, relying on technologies that the Federal Reserve has used for decades