Did We Tame the Beast: Views on the US Financial Reform Bill

Prof. Lawrence Baxter takes a microscope to the ‘Dodd-Frank’ Bill (Dodd-Frank Wall Street Reform and Consumer Protection Act, H.R. 4173) finding a veritable ’Micrographia’ of doubt. The Bill was devised to address problems associated with the global financial crisis of 2007-2009. This paper was written in anticipation of the US Financial Reform Bill’s passage through Congress. The legislation has since been enacted as Public Law No. 111-203, signed by President Obama on July 21, 2010

Fundamental Forces Driving United States and International Financial Regulations Reform

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 the growth in the real economy; (3) dramatic increase in financial interconnectedness worldwide, accompanied by a growing complexity in financial institutions and the regulatory framework, all of which could be becoming unmanageable; (4) “human factor” in finance, which tends to confound our assumptions about market behavior; (5) growth in the critical yet little understood and regulated “shadow banking system;” (6) deep technology revolution, which continues to transform the dynamics of the global economy; and (7) “next convergence” between Western and “emerging” economies, which is changing the global economic profile and presenting profound new challenges to financial refor

Fiduciary Issues in Federal Banking Regulation

It is argued that the fiduciary duty being claimed by banking regulators against depository institutions arising out of the S&L scandal is actually a distinct statutory duty

Adaptive Financial Regulation and RegTech: A Concept Article on Realistic Protection for Victims of Bank Failures

Frustrated by the seeming inability of regulators and prosecutors to hold bank executives to account for losses inflicted by their companies before, during, and since the financial crisis of 2008, some scholars have suggested that private-attorney-general suits such as class action and shareholder derivative suits might achieve better results. While a few isolated suits might be successful in cases where there is provable fraud, such remedies are no general panacea for preventing large-scale bank-inflicted losses. Large losses are nearly always the result of unforeseeable or suddenly changing economic conditions, poor business judgment, or inadequate regulatory supervision—usually a combination of all three. Yet regulators face an increasingly complex task in supervising modern financial institutions. This Article explains how the challenge has become so difficult. It argues for preserving regulatory discretion rather than reducing it through formal congressional direction. The Article also asserts that regulators have to develop their own sophisticated methods of automated supervision. Although also not a panacea, the development of “RegTech” solutions will help clear away volumes of work that understaffed and underfunded regulators cannot keep up with. RegTech will not eliminate policy considerations, nor will it render regulatory decisions noncontroversial. Nevertheless, a sophisticated deployment of RegTech should help focus regulatory discretion and public-policy debate on the elements of regulation where choices really matter

Did We Tame the Beast: Views on the US Financial Reform Bill

Prof. Lawrence Baxter takes a microscope to the ‘Dodd-Frank’ Bill (Dodd-Frank Wall Street Reform and Consumer Protection Act, H.R. 4173) finding a veritable ’Micrographia’ of doubt. The Bill was devised to address problems associated with the global financial crisis of 2007-2009. This paper was written in anticipation of the US Financial Reform Bill’s passage through Congress. The legislation has since been enacted as Public Law No. 111-203, signed by President Obama on July 21, 2010

Understanding Regulatory Capture: An Academic Perspective from the United States

Although it sometimes seems that financial regulatory agencies have been entirely captured by the larger players in the industry they regulate, a closer examination reveals that a variety of factors contribute to policy outcomes in this arena. Agencies have different agendas and stakeholders, and banks often perform quasi-governmental roles that blur the line between the captors and the captured. The real danger is that public policy can be distorted as a result of excessive influence by one set of interests at the expense of others. This danger is best thwarted or at least mitigated through the application of a range of institutions and processes, ranging from external checks on agency action to a strengthening of institutions designed to represent interests that the regulated industry itself is unlikely to promote. Internal checks that might provide incentives for more public-oriented actions on the part of industry participants are also relevant