The hype over technology-enabled disintermediation of financial services, commonly known as fintech, seems at a peak. Though fintech firms promise to increase competition in the financial industry, it is unclear how much the various forms of fintech, including those working on the blockchain, will disrupt the current competitive environment.
In our paper, we review the market failures justifying financial intermediation. We find that fintech has the potential to improve the efficiency of financial intermediation in, for instance, the area of payments and financial advice. However, the current hype may be exaggerated and partly misleading. We contend that trust, a … Read more
In the weeks leading up to Ant Financial’s ill-fated IPO, Jack Ma criticized the system of international banking regulation in remarks at the Bund Summit in Shanghai. The Alibaba co-founder contended that the current framework was a poor match for countries like China that needed to innovate in the creation and delivery of financial services. Describing today’s regulatory system as designed for the “elderly” economies that have long relied on a traditional and compliance-heavy system of banking, Ma explained that emerging or “youth” nations depended on their ability to foster innovation in ways that were less constrained by capital-intensive rulemaking.… Read more
On July 31, 2020, Judge Caproni in the Southern District of New York denied an emergency motion filed by certain bondholders for a temporary restraining order that would have halted efforts by the Republic of Ecuador (“Ecuador”) to restructure $17.4 billion of its sovereign debt based on allegations of securities fraud arising from statements made by Ecuador in its restructuring-related press releases. The Court upheld Ecuador’s use of the collective action clauses (“CACs”) in its indentures as the primary tool to accomplish the proposed restructuring.
In addition to its effects on Ecuador, which is restructuring its debt amidst a severe … Read more
On October 23, 2020, the International Swaps and Derivatives Association, Inc. (ISDA) published its IBOR Fallbacks Protocol (Protocol) and Supplement to the 2006 ISDA Definitions (Supplement) in anticipation of the expected discontinuation of the London Interbank Offered Rate (LIBOR) at the end of 2021. ISDA has also published a related set of Frequently Asked Questions, as well as a User Guide to IBOR Fallbacks and RFRs, to assist market participants in navigating the Protocol and the Supplement.
ISDA collaborated with the Financial Stability Board’s Official Sector Steering Group to devise more robust fallbacks for LIBOR and other key … Read more
The European Union has recently taken a significant step in regulating foreign direct investment (“FDI”). As of October 11, 2020 a new EU regulation related to inbound foreign investment (the “FDI Regulation”) became binding on all 27 Member States. The new FDI Regulation does not create a stand-alone mechanism to vet foreign investment akin to the Committee on Foreign Investment in the United States (“CFIUS”) or national security review systems established by individual Member States. Rather, the new EU FDI regime establishes minimum standards for Member States’ review systems, creates an information sharing channel between the EU … Read more
Since the beginning of 2020, COVID-19 has prompted a surge in economic uncertainty, causing interruptions in business supply chains and revenues that now threaten the survival of companies. Companies struggling to meet their fixed expenses and existing obligations respond by increasing the demand for loans, but banks are inclined to reduce the supply. In our new paper “Bank Lending during the COVID-19 Pandemic,” we examine how the COVID-19 crisis affects the pricing and structure of large corporate loans in the global syndicated loan market.
Overall we consider more than 4,000 loans granted from 77 banks to 820 firms in 28 … Read more
With ballots still being counted in many races, and threats of litigation in others, the 2020 election season may not be fully complete. Voters in red states and blue states displayed unity on few issues, but among these cannabis ranks high: New Jersey, Arizona, Montana and South Dakota voted to legalize recreational cannabis, and Mississippi and South Dakota voted to legalize use of medical marijuana. Oregon also became the first state to decriminalize small amounts of cocaine, heroin, methamphetamine and other drugs.1
These state-level actions will pose additional compliance challenges for financial institutions that already struggle with the conflict posed … Read more
While much attention has been paid to President Trump’s deregulatory efforts and intentions, presidential involvement in the work of the administrative agencies is not new. Past presidents including Ronald Reagan, Bill Clinton, and Barack Obama have acted up to – and at – the limits of presidential power in efforts to ratchet-up, or ratchet-down, regulation.
My recently published article, Presidential Pendulums in Finance, examines the past decade of presidential involvement in financial regulation in particular. As the paper explains, presidential involvement in financial regulation over the past 10 years stands to quicken the rate at which regulatory cycles … Read more
The European Commission’s Sustainable Finance Action Plan (the “Action Plan”) proposed a package of measures including, amongst other initiatives, a regulation imposing sustainability-related disclosures on financial market participants (“SFDR”) and a regulation to establish an EU-wide common language (or taxonomy) to identify the extent to which economic activities can be considered sustainable (the “Taxonomy Regulation”). This briefing note provides an overview of the Taxonomy Regulation and the SFDR and discusses their impact on private fund managers, including non-EU managers who market their funds into the EU and/or the United … Read more
In a new paper, I examine the legal issues surrounding a “retail” central bank digital currency (“CBDC”), one that is used by consumers on a day-to-day basis as an alternative to cash. Most discussions about CBDC focus on its purported benefits and initial design. Little is written about how existing laws and regulations will extend to CBDCs or what new regulations will have to be implemented. My paper engages in that analysis.
The analysis assumes that future retail CBDCs will be account-based, meaning the currency will be represented by book entries in accounts that are held and managed by banks. … Read more
Pre-COVID-19, pressure from investors, stakeholders and regulators helped jump-start green financing. The onset of the pandemic brought a temporary chilling effect to the global economy, but because sustainability-linked loans (SLLs) were developed to fill a critical gap in financial markets, they are likely here to stay and to continue growing in popularity, even as COVID-19 remains a public health crisis. Quarterly reports and trends — determined by analyzing Bloomberg Terminal data from 2018 through the second quarter of 2020 — indicate a long-term appetite for SLLs, with investors, stakeholders and regulators demanding sustainability now more than ever. Indeed, in evaluating … Read more
Bank bailouts during periodic financial crises aim to stop financial panic and restore the stability of the financial system. Even if they are undesirable, future bank bailouts are unavoidable due to political and political economy reasons, whether or not they are regulated or economically efficient. In a new book, I build on existing literature to examine the different bank bailout and resolution techniques and tools through carefully selected case studies from the U.S., the E.U., the U.K., Spain, and Hungary. The pros and cons of the different legal and regulatory options are identified in order to reconstruct a regulatory framework … Read more
The London Interbank Offered Rate (LIBOR) has been the standard floating rate benchmark for debt instruments of all kinds around the world for decades. It is calculated every banking day by polling major banks on their estimated borrowing costs for various currencies and tenors. If your business carries debt, the interest rate on that debt is likely to be linked to LIBOR. A few years ago, after it came to light that certain banks were effectively manipulating LIBOR, it was announced that LIBOR will cease to be quoted as of the end of 2021.
While the official end of LIBOR … Read more
In the summer of 2020, with the U.S. economy bearing the impact of the COVID-19 pandemic, the unemployment rate was as high as it had been any time since 1948, and the NASDAQ and the S&P 500 indices reached their highest values ever. This dramatic difference in trajectories between unemployment and the stock market raises the questions of how much the stock market reflects the health of the American economy and whether in recent years it does so less than it used to. In a new paper, we explore these issues for the period 1950-2019 for a subset of our … Read more
Governments have tended to treat climate change as primarily an issue of environmental policy. Recent climate change-related events, ranging from hurricanes to forest fires to floods, and their devastating effects on the global economy, however, are gradually alerting regulators and governments to the risks of climate change to financial stability. This has spurred action in several countries, as well as globally, to address climate change as a financial risk. Nevertheless, the U.S. has been notably absent from these efforts despite being the home to several large financial markets.
Covid-19 has also highlighted the perils of ignoring seemingly non-financial risks. Perhaps … Read more
Since the1990s, global investment in private equity has increased from under $10 billion per year to well over $100 billion. Over the same period, there has also been a shift from public markets in major economies like the U.S. and UK. These developments are likely connected by the fact that small and mid-sized companies are staying private longer or never going public, which is largely the result of more private funding being available to late-stage start-ups and growth companies in these economies.
Over the last two decades, another notable trend has been the rise in private equity investment outside the … Read more
Equity index futures are futures contracts written on equity indices such as the S&P 500 or the Dow Jones Industrial Average. Deriving values from the underlying indices, index futures offer expedience to investors interested in a broad economic sector or geographical region represented by the indices without taking a position in each constituent stock. Equity index futures started trading in the U.S. on the Chicago Mercantile Exchange (CME) in 1982 against the S&P 500 index. Today, equity index futures are one of the most actively traded financial derivatives in the U.S., with almost 400 million index futures contracts traded on … Read more
In my new article, Modernizing the Bank Charter, I take a look at the actual practice of regulators when deciding whether to license a bank – or a fintech – and thereby afford them both the burdens and the benefits of supervision by the Office of the Comptroller of the Currency. I argue that the practice of those who grant charters has been to make sure a bank makes business sense and that the chartering process has been ultra-cautious – even if it does not allow for adequate review and is sometimes too opaque. This caution, however, suggests that … Read more
On August 31, 2020, three divisions of the US Commodity Futures Trading Commission (CFTC) issued revised no-action letters providing additional relief to swap dealers (SDs), end users, and other market participants from registration requirements; business conduct standards; uncleared swap margin requirements; mandatory clearing; and trade execution requirements as a result of the looming discontinuation of the London Interbank Offered Rate (LIBOR) and other interbank offered rates (IBORs) and the transition to risk-free rates (RFRs). The relief came at the request of the Alternative Reference Rates Committee (ARRC), the group of private-market participants convened by the Federal Reserve Board and the … Read more
In 2013, Delaware passed legislation adopting a new corporate form, the public benefit corporation (PBC), with a view to allowing directors of for-profit corporations to take actions not just in pursuit of stockholder returns, but also with the “[intent] to produce a public benefit or benefits and to operate in a responsible and sustainable manner.”  Over the past few years, thousands of social ventures, as well as more traditional companies, have incorporated as PBCs, with one study reporting 295 venture-backed PBCs as having raised a combined $2.5 billion from 2013 to 2019. This is in part due to decisions … Read more