Operational Failures and Financial Crises

By Hilary J. Allen March 25, 2020 by renholding

Past financial crises have been characterized by panics, runs, and restrictions on the availability of credit, and our crisis prevention measures (including capital regulation, deposit insurance, and the lender of last resort) have been adopted in light of this historical …

Should We Ban Short Sales in a Stock Market Crash?

By Marco Pagano March 17, 2020 by renholding

Few things are more predictable than loud demands for regulatory interventions to stop speculation when stock market prices plunge: In these days, as in any recent stock market crash, we hear politicians and commentators inviting regulators to enact interventions spanning

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Coronavirus, Systemic Risk, and Lessons from 2008

By Kathryn Judge March 16, 2020 by renholding

The greatest single-day decline in the stock market this century, widespread fear and uncertainty, shuttered schools, an end to large gatherings everywhere from NBA games to the South by Southwest festival – these are just a few of the signs …

Why Financial Regulation Keeps Falling Short

By Dan Awrey and Kathryn Judge February 25, 2020 by renholding

Modern finance is fast moving, extremely complex, and contributes to pervasive unknowns. Yet the processes governing how finance is regulated are typically slow, highly deliberative, and often reflect deeply ingrained and incredibly optimistic assumptions about our ability to understand the …

How the SEC Modernized Regulation of Exchange-Traded Funds and the Task Ahead

By Georges Ugeux February 6, 2020 by renholding

On September 26, 2019, the SEC released the much-anticipated new rule and form amendments designed to modernize the regulation of Exchange-Traded Funds (ETFs).[1] Rule 6c-11 under the Investment Company Act permits ETFs that satisfy certain conditions to operate without …

Shifting Contours of Directors’ Fiduciary Duties and Norms in Comparative Corporate Governance

By Jennifer G. Hill February 5, 2020 by renholding

The problems in global financial markets are often similar, even though the capital market structure across jurisdictions differs significantly. The beginning of the 21^st century was marked by a spate of international corporate scandals, and the 2007-2009 global financial …

Too Many to Fail: Against Community Bank Deregulation

By Jeremy C. Kress and Matthew C. Turk January 2, 2020 by renholding

If there was one thing most people could agree on after the 2008 financial crisis, it was that “too-big-to-fail” banks were to blame for the market crash. This shared understanding was accompanied by a corollary: Small banks were not the …

Reaching for Yield and the Diabolic Loop in a Monetary Union

By Sabri Boubaker, Dimitrios Gounopoulos, Duc Khuong Nguyen and Nikos Paltalidis December 6, 2019 by renholding

One of the repercussions of the housing market collapse in the U.S. in 2007 was global anxiety about excess leverage, debt repayment, and overall credit conditions. Risk-pricing levels increased abruptly for highly indebted countries, making new borrowing to refinance debt …

Do Credit Rating Agencies Detect Accounting Frauds?

By Allen Huang, Pepa Kraft and Shiheng Wang September 13, 2019 by renholding

Accounting fraud imposes severe costs on firms and their stakeholders. Firms at which fraud occurs often have inefficient resource allocation and face higher cost of capital and regulatory penalties. While shareholders suffer the brunt of these damages, frauds can also …

How Are Bankers Paid?

By Benjamin Bennett, Radhakrishnan Gopalan and Anjan V. Thakor July 9, 2019 by renholding

Bank behavior and how it relates to bank fragility and systemic risk have been in the spotlight since the 2007-2009 financial crisis. Regulators claim that bankers’ compensation structures played a role in encouraging behavior which contributed to the financial crisis. …

Network-Sensitive Financial Regulation

By Luca Enriques, Alessandro Romano and Thom Wetzer June 10, 2019 by renholding

Shocks to only part of the financial system, such as the collapse of the subprime mortgage market in 2007, can spread and intensify through the complex interconnections among financial and non-financial institutions to become systemic threats. The consequences can be …

The Future of Financial Institution Resolution

By Paul L. Lee May 16, 2019 by renholding

One of the principal lessons learned from the 2007-2009 financial crisis was the need for new legal regimes to facilitate the rapid and orderly resolution of systemically important financial institutions without a government bailout. In the final part of a …

Why We Need a Guarantor of Last Resort

By Kathryn Judge May 15, 2019 by renholding

More than a decade has passed since the worst of the 2007-2009 financial crisis. In that time, we have learned that some of the gravest consequences of the crisis were not the economic fallout, but the political backlash it triggered. …

Guarantor of Last Resort: Is There a Better Alternative?

By Morgan Ricks May 15, 2019 by renholding

Larry Summers, who was one of President Obama’s key economic advisors when the Dodd-Frank Act of 2010 was enacted, recently decried what he called “excessive populism” in portions of that legislation. This might seem surprising; Dodd-Frank’s technocracy-on-steroids approach (848 pages! …

Emergency Guarantee Authority: Not Letting a Crisis Go to Waste

By Graham Steele May 15, 2019 by renholding

Calming the panic in short-term funding markets was a significant part of the response to the 2008 financial crisis. While the TARP bailout programs received the most attention during the crisis, TARP never exceeded one-fifth of the government’s overall financial …

Emergency Guarantee Authority: A FEMA for Finance

By Stephen G. Cecchetti and Kermit L. Schoenholtz May 15, 2019 by renholding

“[I]t is a question of when, not if, a large-scale attack succeeds.” DTCC and Oliver Wyman, Large-scale Cyber-attacks on the Financial System, March 2018.

“The government cannot credibly commit to a no-bailout policy.” Kathryn Judge, “Guarantor of

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The Myth of Risk Free Markets

By Yesha Yadav May 9, 2019 by renholding

Economies and markets operate on the assumption that U.S. debt securities (“Treasuries”) are risk-free. This means that the United States is expected to pay its debts. Also, Treasuries are supposed to trade easily and efficiently in secondary markets. Unsurprisingly, the …

Land of the Falling Poison Pill: Understanding Defensive Measures in Japan

By Alan K. Koh, Masafumi Nakahigashi and Dan W. Puchniak April 17, 2019 by renholding

The advent of the “shareholder rights plan,” more popularly known as the “poison pill,” fundamentally altered the trajectory of American corporate governance. Intended to defend vulnerable boards from corporate raiders, the poison pill was embraced by U.S. managers in the …

Debt Overhang, Rollover Risk, and Corporate Investment: Evidence from the European Crisis

By Sebnem Kalemli-Ozcan, Luc Laeven and David Moreno April 11, 2019 by renholding

Investment expenditure in Europe collapsed in the aftermath of the 2008 global financial crisis. This collapse followed a boom during which the corporate sector borrowed heavily (Gopinath, Kalemli-Ozcan, Karabarbounis, Villegas-Sanchez, 2017). Figures 1 and 2 illustrate the extent of the …

How Banks with Leaders Experienced in Past Crises Fared in Global Financial Crisis

By Anwer S. Ahmed, Brant E. Christensen, Adam J. Olson and Christopher G. Yust March 21, 2019 by renholding

Regulators and policymakers have asserted that the public was “blindsided” by the “perfect storm” that caused the 2007-2009 global financial crisis (GFC, e.g., Financial Crisis Inquiry Commission [FCIC] 2011; Appelbaum 2015). Academic research has similarly found that market participants, including …

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Columbia Law School's Blog on Corporations and the Capital Markets

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