Bank Regulation as Vestigial Corporate Regulation

Although it seems seldom if ever remarked, there is a rich set of parallels between modern U.S. bank regulation, on the one hand, and what used to be garden variety American corporation law, on the other hand. Just as bank charters are matters not of right but of conditional privilege even today, so were all corporate charters not long ago. Just as chartered banks are authorized to engage only in specifically enumerated, carefully limited activities even today, so were all corporations restricted not long ago. And just as banks are subject to strict capital regulation even today, so were all … Read more

Toward “Deep” Financial Reform: The U.S. as a Developmental Finance State

Following a familiar historical pattern, policy responses to the latest global financial crisis and subsequent economic and political dysfunction can be divided into three sequenced but overlapping phases. The first phase was a period of “wartime”-style emergency measures hastily fashioned by legislators and regulators working to place a floor beneath sinking markets and stave off further collapse. Next came a protracted, although never quite settled, debate over what actually had happened in 2008 and how best to prevent a recurrence. This second phase saw the enactment of Dodd-Frank and adoption of Basel III, two of the most significant finance-regulatory reform … Read more

Taking Gatekeeping Seriously: Financial Product Approval as a Form of Systemic Risk Regulation

One of the key lessons of the recent financial crisis, and the greatest challenge facing post-crisis regulatory reforms, is the need to control and reduce systemic risk associated with financial innovation, complexity, and the growing interconnectedness of global financial markets. The centerpiece of the U.S. reform effort, the Dodd-Frank Act explicitly targets systemic risk in the financial sector through a variety of measures, including enhanced disclosure of market data, greater standardization and central clearing of derivatives, higher minimum capital standards for financial institutions, and even controversial attempts to restrict trading activities of insured banks and their affiliates.

Despite its sweeping … Read more

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Editor's Tweet: UNC Professor Saule Omarova discusses Financial Product Approval as a Form of Systemic Risk Regulation