Systemic Stability and Fairness: An Analysis of Pistor’s Legal Theory of Finance

In A Legal Theory of Finance, Katharina Pistor introduces a provocative new theory about the relationship between law and finance and the role of law in producing and addressing financial instability.   Pistor shows that law plays a constitutive role in the financial system; yet, because of irreducible uncertainty and uneven liquidity, legal obligations, fully enforced, “would inevitably bring down the financial system.”  Hence, the law-finance paradox.  Collapse is avoided, and predictably so, by the relaxation or suspension of legal obligations, revealing law to be inherently elastic.  Significantly, however, law’s elasticity is not uniform.  “Law tends to be relatively elastic … Read more

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Editor's Tweet: Prof. Kathryn Judge of Columbia Law School Evaluates Prof. Katharina Pistor's Legal Theory of Finance

Market Discipline: The Next Generation

My forthcoming article, Interbank Discipline, draws attention to the important role that banks play monitoring and disciplining other banks.  To understand the significance of interbank discipline, the Article proposes a new way of thinking about market discipline more generally.  In the first wave, advocates of market discipline viewed it as a basis for deregulation.  Why expend government resources duplicating the efforts of market participants, the rationale went, particularly considering that regulation can discourage market discipline and markets are often more effective than regulators?  The 2007-2009 financial crisis, and numerous scandals preceding it, largely brought an end to such reasoning.  … Read more

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Editor's Tweet: Professor Kathryn Judge of Columbia Law School discusses the next generation of market discipline.