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The deadline for the Call for Papers for the AALS Joint-Program of the Securities Regulation and Financial Institutions/Consumer Financial Services Sections has been extended to September 3, 2012.

Call for Papers

AALS Joint Program of the Securities Regulation Section and

Financial Institutions & Consumer Financial Services Section

The Regulation of Financial Market Intermediaries:

The Making and Un-Making of Markets

AALS Annual Meeting, January 4, 2013

New Orleans

The AALS Section on Securities Regulation and the Section of Financial Institutions & Consumer Financial Services are pleased to announce that they are sponsoring a Call for Papers for their joint program on Friday, January 4^th at the AALS 2013 Annual Meeting in New Orleans, Louisiana.

The topic of the program and call for papers is “The Regulation of Financial Market Intermediaries: The Making and Un-Making of Markets.” The financial crisis witnessed numerous market failures involving an array of financial market intermediaries, including banks, broker dealers, and various kinds of investment funds (from money market mutual funds to hedge funds). The crisis came at the end of a decades-long transformation of the U.S. financial services sector that blurred the boundaries between banking and securities businesses. During this period a range of new intermediaries emerged and connected individuals and firms seeking financing to investors in capital markets. At the same time, capital markets became increasingly dominated by financial institutions and other institutional investors. Intermediaries devised and “made markets” for new and often highly illiquid and opaque financial instruments. Many of these new markets froze or crashed in the financial crisis. In response, Dodd-Frank and other financial reforms have imposed a grab bag of new rules on financial intermediaries.

Yet the effects of these financial reforms remain unclear. Moreover, policymakers and scholars often disagree about the precise problems that these reforms are meant to address. For example, the SEC’s headline-grabbing suit against Goldman Sachs over the ABACUS transactions focused on conflicts of interest for large financial conglomerates with different stakes in a transaction. Meanwhile, other financial reforms have focused on the opacity of pricing in financial markets or on the solvency or liquidity risk faced by intermediaries.

The tangle of potential market failures has led to a range of policy responses. Often banking and securities scholars seem to look at the same set of market practices through radically different lenses. Banking scholars focus on solvency crises and banking runs and debate the application of prudential rules on the risk-taking, leverage, and liquidity of intermediaries. At the same time, securities scholars emphasize the problems of conflicts of interest and asymmetric information. They then look to the traditional policy tools in their field such as disclosure, fiduciary duties, and corporate governance.

The dearth of dialogue between these two fields creates the risk of confusion in identifying both problems and solutions for financial intermediaries and the markets in which they operate. To move the discussion forward, scholars in both fields may have to move outside their comfort zones. The study of financial institutions cannot be limited to deposit-taking banks. Similarly, securities regulation involves more than securities offerings and litigation, but the regulation of broker-dealers, investment advisers and funds, and the regulation of trading and markets.

Form and length of submission

The submissions committee looks forward to reviewing any papers that address the foregoing topics. Abstracts should be comprehensive enough to allow the review committee to meaningfully evaluate the aims and likely content of papers they propose. Eligible law faculty are invited to submit manuscripts or abstracts dealing with any aspect of the foregoing topics. Untenured faculty members are particularly encouraged to submit manuscripts or abstracts.

The initial review of the papers will be blind. Accordingly the author should submit a cover letter with the paper. However, the paper itself, including the title page and footnotes must not contain any references identifying the author or the author’s school. The submitting author is responsible for taking any steps necessary to redact self-identifying text or footnotes.

Papers may be accepted for publication but must not be published prior to the Annual Meeting.

Deadline and submission method

To be considered, papers must be submitted electronically to Erik Gerding at [email protected]. The deadline for submission is SEPTEMBER 3, 2012.

Papers will be selected after review by members of a Committee appointed by the Chairs of the two sections. The authors of the selected papers will be notified by September 30, 2012.

The Call for Paper participants will be responsible for paying their annual meeting registration fee and travel expenses.

Eligibility

Full-time faculty members of AALS member law schools are eligible to submit papers. The following are ineligible to submit: foreign, visiting (without a full-time position at an AALS member law school) and adjunct faculty members, graduate students, fellows, non-law school faculty, and faculty at fee-paid non-member schools.

Please forward this Call for Papers to any eligible faculty who might be interested.

A friendly reminder that the AALS Program for the Securities Regulation and Financial Institutions/Consumer Financial Services Sections is fast approaching. Here is the call again:

Call for Papers

AALS Joint Program of the Securities Regulation Section and

Financial Institutions & Consumer Financial Services Section

The Regulation of Financial Market Intermediaries:

The Making and Un-Making of Markets

AALS Annual Meeting, January 4, 2013

New Orleans

The AALS Section on Securities Regulation and the Section of Financial Institutions & Consumer Financial Services are pleased to announce that they are sponsoring a Call for Papers for their joint program on Friday, January 4^th at the AALS 2013 Annual Meeting in New Orleans, Louisiana.

The topic of the program and call for papers is “The Regulation of Financial Market Intermediaries: The Making and Un-Making of Markets.” The financial crisis witnessed numerous market failures involving an array of financial market intermediaries, including banks, broker dealers, and various kinds of investment funds (from money market mutual funds to hedge funds). The crisis came at the end of a decades-long transformation of the U.S. financial services sector that blurred the boundaries between banking and securities businesses. During this period a range of new intermediaries emerged and connected individuals and firms seeking financing to investors in capital markets. At the same time, capital markets became increasingly dominated by financial institutions and other institutional investors. Intermediaries devised and “made markets” for new and often highly illiquid and opaque financial instruments. Many of these new markets froze or crashed in the financial crisis. In response, Dodd-Frank and other financial reforms have imposed a grab bag of new rules on financial intermediaries.

Yet the effects of these financial reforms remain unclear. Moreover, policymakers and scholars often disagree about the precise problems that these reforms are meant to address. For example, the SEC’s headline-grabbing suit against Goldman Sachs over the ABACUS transactions focused on conflicts of interest for large financial conglomerates with different stakes in a transaction. Meanwhile, other financial reforms have focused on the opacity of pricing in financial markets or on the solvency or liquidity risk faced by intermediaries.

The tangle of potential market failures has led to a range of policy responses. Often banking and securities scholars seem to look at the same set of market practices through radically different lenses. Banking scholars focus on solvency crises and banking runs and debate the application of prudential rules on the risk-taking, leverage, and liquidity of intermediaries. At the same time, securities scholars emphasize the problems of conflicts of interest and asymmetric information. They then look to the traditional policy tools in their field such as disclosure, fiduciary duties, and corporate governance.

The dearth of dialogue between these two fields creates the risk of confusion in identifying both problems and solutions for financial intermediaries and the markets in which they operate. To move the discussion forward, scholars in both fields may have to move outside their comfort zones. The study of financial institutions cannot be limited to deposit-taking banks. Similarly, securities regulation involves more than securities offerings and litigation, but the regulation of broker-dealers, investment advisers and funds, and the regulation of trading and markets.

Form and length of submission

The submissions committee looks forward to reviewing any papers that address the foregoing topics. Abstracts should be comprehensive enough to allow the review committee to meaningfully evaluate the aims and likely content of papers they propose. Eligible law faculty are invited to submit manuscripts or abstracts dealing with any aspect of the foregoing topics. Untenured faculty members are particularly encouraged to submit manuscripts or abstracts.

The initial review of the papers will be blind. Accordingly the author should submit a cover letter with the paper. However, the paper itself, including the title page and footnotes must not contain any references identifying the author or the author’s school. The submitting author is responsible for taking any steps necessary to redact self-identifying text or footnotes.

Papers may be accepted for publication but must not be published prior to the Annual Meeting.

Deadline and submission method

To be considered, papers must be submitted electronically to Erik Gerding at [email protected]. The deadline for submission is August 10, 2012.

Papers will be selected after review by members of a Committee appointed by the Chairs of the two sections. The authors of the selected papers will be notified by September 30, 2012.

The Call for Paper participants will be responsible for paying their annual meeting registration fee and travel expenses.

Eligibility

Full-time faculty members of AALS member law schools are eligible to submit papers. The following are ineligible to submit: foreign, visiting (without a full-time position at an AALS member law school) and adjunct faculty members, graduate students, fellows, non-law school faculty, and faculty at fee-paid non-member schools.

Please forward this Call for Papers to any eligible faculty who might be interested.

The AALS Section on Transactional Law and Skills will meet during the AALS Annual Meeting in New Orleans, Louisiana, from 1:30 pm – 3:15 pm on Saturday, January 5, 2013. Please note this program in your calendar. We hope to see you there.

We are soliciting papers for presentation at the Annual Meeting. The topic for this year’s session is: Researching and Teaching Transactional Law and Skills in an Increasingly Global World.

Two presenters will be chosen on the basis of paper summaries submitted in response to this Call for Papers. The topic encompasses the scholarship and teaching of international and comparative transactional law and cross-border transactions. The Executive Committee encourages submissions on a broad range of transactional law and skills issues related to this year’s topic. Paper proposals focused on the teaching of international and comparative transactional law and skills are welcomed, but the Executive Committee is especially interested in papers that explore international and cross-border transactions from an empirical, doctrinal, or theoretical perspective. The Executive Committee specifically encourages submissions from junior scholars.

If you are interested in presenting a paper, please submit a summary of no more than three double-spaced pages, by e-mail, on or before Monday, July 30, 2012. You also may submit a complete draft of your paper. Send your submission to Joan Heminway at The University of Tennessee College of Law ([email protected]). Papers will be reviewed and selected for presentation at the program by members of the Executive Committee of the Section on Transactional Law and Skills:

Afra Afsharipour, Treasurer (U.C. Davis)
Eric Gouvin, Chair-Elect (Western New England)
Joan Heminway, Chair (Tennessee)
Lyman Johnson (Washington and Lee/St. Thomas)
Therese Maynard (Loyola Los Angeles)
Gordon Smith, Secretary (BYU)
Tina Stark, Past Chair (Boston University)

Authors of accepted papers will be notified by August 31, 2012. Please pass this Call for Papers along to any colleagues who may be interested.

Call for Papers

AALS Joint Program of the Securities Regulation Section and

Financial Institutions & Consumer Financial Services Section

The Regulation of Financial Market Intermediaries:

The Making and Un-Making of Markets

AALS Annual Meeting, January 4, 2013

New Orleans

The AALS Section on Securities Regulation and the Section of Financial Institutions & Consumer Financial Services are pleased to announce that they are sponsoring a Call for Papers for their joint program on Friday, January 4^th at the AALS 2013 Annual Meeting in New Orleans, Louisiana.

The topic of the program and call for papers is “The Regulation of Financial Market Intermediaries: The Making and Un-Making of Markets.” The financial crisis witnessed numerous market failures involving an array of financial market intermediaries, including banks, broker dealers, and various kinds of investment funds (from money market mutual funds to hedge funds). The crisis came at the end of a decades-long transformation of the U.S. financial services sector that blurred the boundaries between banking and securities businesses. During this period a range of new intermediaries emerged and connected individuals and firms seeking financing to investors in capital markets. At the same time, capital markets became increasingly dominated by financial institutions and other institutional investors. Intermediaries devised and “made markets” for new and often highly illiquid and opaque financial instruments. Many of these new markets froze or crashed in the financial crisis. In response, Dodd-Frank and other financial reforms have imposed a grab bag of new rules on financial intermediaries.

Yet the effects of these financial reforms remain unclear. Moreover, policymakers and scholars often disagree about the precise problems that these reforms are meant to address. For example, the SEC’s headline-grabbing suit against Goldman Sachs over the ABACUS transactions focused on conflicts of interest for large financial conglomerates with different stakes in a transaction. Meanwhile, other financial reforms have focused on the opacity of pricing in financial markets or on the solvency or liquidity risk faced by intermediaries.

The tangle of potential market failures has led to a range of policy responses. Often banking and securities scholars seem to look at the same set of market practices through radically different lenses. Banking scholars focus on solvency crises and banking runs and debate the application of prudential rules on the risk-taking, leverage, and liquidity of intermediaries. At the same time, securities scholars emphasize the problems of conflicts of interest and asymmetric information. They then look to the traditional policy tools in their field such as disclosure, fiduciary duties, and corporate governance.

The dearth of dialogue between these two fields creates the risk of confusion in identifying both problems and solutions for financial intermediaries and the markets in which they operate. To move the discussion forward, scholars in both fields may have to move outside their comfort zones. The study of financial institutions cannot be limited to deposit-taking banks. Similarly, securities regulation involves more than securities offerings and litigation, but the regulation of broker-dealers, investment advisers and funds, and the regulation of trading and markets.

Form and length of submission

The submissions committee looks forward to reviewing any papers that address the foregoing topics. Abstracts should be comprehensive enough to allow the review committee to meaningfully evaluate the aims and likely content of papers they propose. Eligible law faculty are invited to submit manuscripts or abstracts dealing with any aspect of the foregoing topics. Untenured faculty members are particularly encouraged to submit manuscripts or abstracts.

The initial review of the papers will be blind. Accordingly the author should submit a cover letter with the paper. However, the paper itself, including the title page and footnotes must not contain any references identifying the author or the author’s school. The submitting author is responsible for taking any steps necessary to redact self-identifying text or footnotes.

Papers may be accepted for publication but must not be published prior to the Annual Meeting.

Deadline and submission method

To be considered, papers must be submitted electronically to Erik Gerding at [email protected]. The deadline for submission is August 10, 2012.

Papers will be selected after review by members of a Committee appointed by the Chairs of the two sections. The authors of the selected papers will be notified by September 30, 2012.

The Call for Paper participants will be responsible for paying their annual meeting registration fee and travel expenses.

Eligibility

Full-time faculty members of AALS member law schools are eligible to submit papers. The following are ineligible to submit: foreign, visiting (without a full-time position at an AALS member law school) and adjunct faculty members, graduate students, fellows, non-law school faculty, and faculty at fee-paid non-member schools.

Please forward this Call for Papers to any eligible faculty who might be interested.

The AALS Section on Business Associations will meet during the AALS Annual Meeting in New Orleans, Louisiana, from 3:30-5.15 pm on January 5, 2013.

The topic for this year’s session is: Business Associations and Governance in Emerging Economies.

Panelists will be chosen on the basis of submissions made in response to this Call for Papers. In addition, distinguished scholars will provide comments on the chosen papers. The topic is intended to be broad. Papers may deal with just one emerging economy, or may compare several or many emerging economies as well as other economies. Papers may cover any issues relevant to the governance of corporations or other kinds of business associations. The Executive Committee welcomes submissions on a broad range of issues related to this year’s topic, including empirical and theoretical perspectives. The Committee specifically encourages submissions from junior scholars.

If you are interested in presenting a paper, please submit a summary of no more than three double-spaced pages, preferably by e-mail, before Friday, June 29, 2012. In addition to the summary, you also may submit a complete draft of your paper. Direct your submission to:

Professor Brett McDonnell
University of Minnesota Law School
229 19^th Avenue South
Minneapolis, MN 55405
[email protected]

Papers will be selected after review by members of the Executive Committee of the Section on Business Associations, including:

Jayne Barnard (William & Mary) Robert Bartlett (Berkeley)
Daniel Greenwood (Hofstra) Joan Heminway (Tennessee, Chair Elect)
Kim Krawiec (Duke) Don Langevoort (Georgetown)
Brett McDonnell (Minnesota, Chair) Tamara Piety (Tulsa)
Usha Rodrigues (Georgia) Hillary Sale (Washington U., Past Chair)
Guhan Subramanian (Harvard) Cheryl Wade (St. John’s)

Authors of accepted papers will be notified by September 7, 2012. Please feel free to pass this Call for Papers along to any colleagues who may be interested.

CALL FOR PAPERS

AALS Section on Agency, Partnerships, LLCs, and Unincorporated Associations

The Scholarship of Professor Larry Ribstein

2013 AALS Annual Meeting

New Orleans, LA

Larry Ribstein was a friend to many and a colleague to all of us in the academy. With his untimely passing, he leaves behind a pioneering and influential body of work across a vast range of subjects, including partnerships and limited liability companies, corporate and securities law, choice of law, financial regulation, white-collar crime, legal ethics, and the legal profession.

The AALS Section on Agency, Partnership, LLCs, and Unincorporated Associations seeks to honor Larry’s legacy by focusing on his work at the 2013 AALS Annual Meeting in New Orleans. We are soliciting papers on a broad range of issues dealing with Larry’s partnership, LLC, and/or “uncorporation” scholarship. Among the topics that might be addressed are:

• An evaluation of the impact of Larry’s scholarship in a particular area;

• A discussion of issues or positions that Larry changed his mind on over time, and how;

• An examination of how Larry’s work in other areas informed his work in the unincorporated sphere, and vice-versa;

• “Larry as blogger” and the influence of his web postings

Submission procedure: A draft paper or proposal may be submitted via email to Professor Douglas Moll at [email protected].

Deadline date for submission: April 1, 2012

Form and length of paper; submission eligibility: There is no requirement as to the form or length of proposals. Faculty members of AALS member and fee-paid law schools are eligible to submit papers.

Registration fee and expenses: Program participants will be responsible for paying their annual meeting registration fee and expenses.

How will papers be reviewed?: Papers and proposals will be selected after review by the Section’s Executive Committee.

Will the program be published?: The section plans to contact the law reviews at schools where Professor Ribstein taught in the hopes of publishing the papers submitted for the meeting as a symposium. At this time, however, no guarantees of publication can be made.

Contact for submission and inquiries: Professor Douglas Moll, University of Houston Law Center. 713-743-2172 or [email protected]

I think every member of this here blog is now on their way back from the AALS Annual Meeting (and we haven't been shy about posting about it, either). AALS, if not always unrelentingly awesome, certainly does put a bunch of law professors in the same building. That offers some rewards right there. But there may be more. I'm not sure if it's a lack of imagination on my part or a newly grown sense of responsibility, but I find myself attending more panels these days than I did as a rookie. Perhaps that's a good sign for the meeting. And with all the side and shadow conferences on tap as well - I spoke at this one - you can usually find something worth doing. At least, unless you do international economic law. More of that next year please!

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The only negative from the first meeting of the Section on Transactional Law and Skills this afternoon was the absence of Section Chair Tina Stark, who was unable to attend. Tina provided the energy and leadership for the creation of this new section. We are all indebted to her, and we missed her today.

The section meeting had two parts. First, two speakers who were selected from the call for presentations described their efforts in transactional education. Carol Morgan talked about corporate counsel externships at the University of Georgia, and she rekindled my interest in this form of transactional education. When I interviewed for my first academic job in 1993, I talked about the need to bring transactional training to law students, and shortly after arriving at Lawis & Clark, I created the "Clinical Internship Seminar: Corporate Counsel," which seems similar to the Georgia externship program. It's a great context for students to learn something about business and law.

Karl Okamoto followed by describing his incredible LawMeets competitions, MiniMeets tools, and ApprenNet program. I am not sure if I can claim to have been there at the creation, but I remember Karl floating some of these ideas at a dinner just three or four years ago, and I am astounded by the amount of progress he and his team have made. You can read more about all of this in The National Law Journal. After hearing Karl's presentation, I have decided to use a couple of his MiniMeets in my Business Associations course this next semester. If you want to include some transactional lawyering in one of your courses, I know he would be eager to discuss his products.

In the second part of the program, I moderated a panel discussion on "Getting it Done." Law schools have embraced the teaching of transactional skills, but many questions remain about how best to execute this strategy, and this panel featured people who were implementing transactional training on a grand scale. Scott Burnham of Gonzaga described the first-year Transactional Skills and Professionalism Lab; Jim Moliterno of Washington and Lee discussed transactional immersion and other components of that school's well-known third-year program; Bob Rasmussen of USC talked about the importance of interprofessional education for business lawyers and efforts at USC to encourage such training; and Janet Thompson Jackson related her experiences as transactional clinician at Washburn. The panelists were uniformly excellent.

While we touched on many subjects during the panel session, one point of emphasis among the panelists and the audience was the importance of adjunct professors. Eric Gouvin referred us to his ABA Report on Best Practices Report on the Use of Adjunct Faculty, which is essential reading for academic deans and others who work with adjunct professors. Eric noted that the ABA encourages law schools to employ adjunct professors. While that is true, the AALS has a membership requirement limiting the use of adjunct professors. My sense is that this requirement is not well known among law professors who have no experience in administration. AALS Bylaw 6-4(d) provides:

In each division of a member school's program, each student shall have the opportunity to obtain substantially all of his or her instruction leading to the Juris Doctor degree from the school's full-time faculty.

The interpretation of this bylaw appears in Executive Committee Regulation 6-4.1:

Full-time Faculty Requirement. A member school demonstrates compliance with Bylaw 6-4(d) if in each division of its program, the school's full-time faculty offer at least two-thirds of the credit hours or student-contact hours leading to the J.D. degree. (emphasis added)

Most plans for increasing transactional training rely heavily on the use of adjunct professors, but truly ambitious programs run the risk of pushing a school into dangerous territory with regard to this provision. I hope the AALS' emphasis on full-time faculty is not merely a protectionist measure from law professors. In any event, if we are serious about encouraging experiential learning during law school, the Executive Committee will need to revist this interpretation.

The emphasis of this year's program was on transactional education, and I think it was terrific. Tina should be proud. However, I know that Tina, our new chair Joan Heminway, and the other officers and executive committee members of the Section are committed to the promotion of transactional scholarship, too. If you are interested in transactional teaching or scholarship, I hope you will support this Section.

The Section on Financial Institutions and Consumer Financial Services will have a record four events at this weekend's Association of American Law Schools Annual Meeting in Washington, DC. The theme is rethinking and reviving the field of financial institutions on the ground and in the academy. We will take stock of reforms so far and consider the impact of the crises in the United States and Europe, but also will take a long-term view of the field from diverse theoretical, policy, and methodological perspectives.

The program begins on Saturday morning (10:30 am-12:15 pm, Marriott Wardman Park, Thurgood Marshall North - Mezzanine Level) with a big-think "revival" panel featuring Jill Fisch (Penn), Howell Jackson (Harvard), Kim Krawiec (Duke), Pat McCoy (Connecticut, recently at Consumer Financial Protection Bureau), Katharina Pistor (Columbia), and Annelise Riles (Cornell).

Next we have a lunch keynote speech by Governor Sarah Bloom Raskin, introduced by Arthur Wilmarth (George Washington) (12:15-1:30 pm)

Next comes an offsite event at American University starting at 4 pm (separate registration required). This event will include a policy roundtable on moderated by Adam Feibelman (Tulane), with regulators and policy makers from different agencies, as well as a paper presentation.

The weekend will conclude on Sunday with a panel presentation of four scholarly papers (9 - 10:45 am - Maryland Suite A, Lobby Level). Heidi Schooner will moderate the Call for Papers panel.

Full program details are here.

Here are links to the selected papers, authors, and commentators (as well as my prior blog posts introducing the papers):

Saturday:

Anat R. Admati, Peter Conti-Brown, & Paul Pfleiderer, Liability Holding Companies (presented by Peter Conti-Brown (Stanford), comments by Saule Omarova (North Carolina)) (my introductory blog post)

Sunday:

Eric Chaffee (Dayton) & Geoffrey C. Rapp (Toledo), Regulating On-line Peer-to-Peer Lending in the Aftermath of Dodd-Frank (comments by Andrew Verstein (Yale)) (my introductory blog post)

Stavros Gadinis (U.C. Berkeley), From Independence to Politics in Banking Regulation (comments by Shruti Rana (Maryland))(my introductory blog post)

Anita K. Krug (Univ. of Washington), Institutionalization, Investment Adviser Regulation, and the Hedge Fund Problem (comments by Kristin N. Johnson (Seton Hall)) (my introductory blog post)

Wulf A. Kaal (St. Thomas) & Christoph Henkel (Mississippi College School of Law), Sequential Contingent Capital Triggers in Europe and the United States (comments by Mehrsa Baradaran (BYU))(my introductory blog post)

This is the fifth and final installment of a series of previews of the papers being presented at the AALS Financial Institutions & Consumer Financial Services Section events this weekend. This final paper will be presented at a special off-site event starting at 4 pm on Saturday at American University. (See here for details on the full weekend of Financial Institutions/Consumer Financial Services Section events).

Peter Conti-Brown (Academic Fellow, Stanford Law, Rock Center for Corporate Governance) will present, Liability Holding Companies, a paper he co-authored with Anat Admati and Paul Pfleiderer (both of Stanford’s Graduate School of Business). To understand this paper, it helps to read an earlier, influential paper by Admati, Pfleiderer, and a number of co-authors on which it builds. This earlier work, Fallacies, Irrelevant Facts, and Myths in the Discussion of Capital Regulation: Why Bank Equity is Not Expensive, countered criticisms of higher capital requirements. That earlier paper responded to charges that higher capital requirements would impose large social costs, including reducing bank lending.

Yet in Liability Holding Companies, Conti-Brown and his co-authors admit that bank debt may have some benefits; creditors may monitor and discipline bank management. To balance this disciplinary benefit against reducing the social costs of excessive bank leverage (financial institution fragility, systemic risk, increased risk of bailouts), Admati, Conti-Brown, and Pfleiderer propose a regulatory innovation. Here is their abstract:

An international debate continues to unfold in banking law, corporate governance, and finance on whether the capital structure of the world’s largest financial institutions is too heavily dependent on debt, too little on equity. Two of us, with co-authors, have argued elsewhere that there is no socially beneficial purpose for this over-reliance on debt and, indeed, that such reliance increases the likelihood of taxpayer bailouts, with their associated economic, financial, and social costs. Some academics and bankers continue to insist, however, that increased equity is costly for banks and for society. The arguments proffered in defense of these propositions contradict the most basic insights from corporate finance, and often neglect to distinguish private costs from social costs in explaining their preference for debt-heavy capital structures.

While there are overwhelming costs that excessive bank debt can have on the broader economy, some contend that there may be some benefits from debt for a firm’s corporate governance. In particular, some academics have argued that debt is useful because it “disciplines” bank management. The idea suggests that creditors with hard claims against the firm will monitor the firm to prevent bank management from misusing the free cash flows that the banks’ economic activities generate. If these benefits exist and are substantial, we may face a vexing tradeoff: too much debt creates dramatic social costs, moral hazard, and systemic risk, while too little may have negative consequences for firm governance. The challenge is to find a way of optimizing that tradeoff.

This Article engages that challenge, and introduces a new kind of financial institution – called a Liability Holding Company (LHC) – that appropriately balances the social costs of excessive private leverage with the purported benefits for corporate governance that such leverage might create. Our proposal places an increased liability version of the bank’s equity in a conjoined but separately controlled entity, the LHC, that also owns other assets to which the banks’ liabilities have recourse in the event of failure. The equity shares of the LHC—a holding company subject to a unique regulatory regime supervised by the Federal Reserve, similar to Bank Holding Companies or Financial Holding Companies—are then traded in public markets. The LHC thus aims to eliminate or at least greatly reduce the role of the government as the effective guarantor of the systemically important financial institutions (SIFIs), thus reducing the distortions that current implicit governmental guarantees create. It additionally allows banks the benefits of two boards: an advising board, that the bank managers may appoint, and the monitoring board housed at the LHC, appointed by the LHC’s own public shareholders. This dual board structure resolves some important issues raised in the long-standing debate about the role corporate boards should play. We discuss in detail how this proposal would function within the present legal and regulatory environment—particularly within the contexts of bank regulation, corporate governance, and Dodd-Frank—and address counter-arguments and alternative proposals.

Saule Omarova (North Carolina) will serve as discussant for the paper.

This is the fourth installment of a series of previews of the papers being presented at the AALS Financial Institutions & Consumer Financial Services Section meeting this Sunday from 9 am to 10:45 am at the Marriott Wardman Park.

Stavros Gadinis (U.C. Berkeley) has authored the fourth paper that will be presented on Sunday. His work, From Independence to Politics in Banking Regulation (forthcoming in the Duke Law Journal) provides a very insightful empirical study of how lawmakers are responding to the financial crisis. Surprisingly, Gadinis finds across a number of countries, lawmakers are moving away from giving responsibility for bank regulations to independent agencies. Instead, lawmakers are increasingly assigning responsibility to officials subordinate to elected politicians or to politicians themselves.

Here is his abstract:

U.S. financial regulation traditionally relied on independent agencies, such as the Federal Reserve and the FDIC. In the last two decades, countries around the world followed the U.S. example by strengthening the independence of their financial regulators, encouraged by recommendations from international organizations such as the Basel Committee and the IMF. Yet, reforms introduced following the 2007-2008 financial crisis abandon the conventional paradigm of agency independence and allocate authority to officials under the direct control of elected politicians, such as the Secretary of the Treasury. This paper studies reforms in 10 key jurisdictions for international banking. It shows that politicians gained new powers with three distinct features. First, politicians have new authority not only to handle emergencies, but also to oversee banks’ financial condition during regular times of smooth business operation. Second, politicians exercise these powers directly, rather than by delegation to a regulatory bureaucracy. Third, while reforms did not dismantle independent regulators, they require them to work under the leadership of politicians in new systemic oversight arrangements. Whenever reformers established new regulatory bodies or mechanisms, they placed politicians at the helm.

Gadinis’s paper promises to launch a fleet of subsequent scholarship. Beyond the normative/ policy question of whether this shift away from independence is a good development, are interesting questions that would drill down into the data. I would find it surprising that elected officials would assume all these new powers without building in mechanisms to hedge the risk of being blamed for the next crisis.

At the same time, Gadinis is writing at a particularly fertile juncture of financial regulation and administrative law. Some of the influential recent administrative law scholarship in this area has argued that traditional hallmarks to measure agency independence and traditional mechanisms to safeguard that independence need to be rethought, at least in the U.S. context. For example, Lisa Schulz Bressman & Robert Thompson have looked at the nuanced ways in which the President can exercise influence over agencies. Rachel Barkow has laid out other ways in which agencies can be insulated from capture beyond the traditional mechanisms (which, include taking away the President’s power to fire an agency head and exempting agency regulations from Executive Office cost-benefit review). So we need to pay much more attention to texture and nuance in defining agency independence and serving its underlying goals. Of course, the coding in a comparative empirical study cannot take into account all the differences in institutional environments among numerous countries.

Gadinis’s paper is sure to spark a lively scholarly conversation. Shruti Rana (Maryland) will serve as discussant and be first to engage.

This is the third installment of a series of previews of the papers being presented at the AALS Financial Institutions & Consumer Financial Services Section meeting this Sunday from 9 am to 10:45 am at the Marriott Wardman Park.

Anita Krug (Univ. of Washington) authored the third paper in our Sunday Panel, Institutionalization, Investment Adviser Regulation, and the Hedge Fund Problem (forthcoming in the Hastings Law Journal). Professor Krug looks at the regulation of investment advisers, a corner of financial regulation that has mushroomed in importance in practice, but has not enjoyed enough focus in legal scholarship (for one exception, see Laby).

Her paper remedies that and points scholars to securities law beyond the ’33 and ’34 Act. As scholars focus on longstanding debates, high stakes turf wars have erupted in the world of regulatory practice over the boundaries of investment adviser regulation, the regulation of broker-dealers, and hedge fund regulation generally. At the same time Krug’s work fits into a body of work (e.g., Langevoort) that focus on another seismic shift by examining the regulatory consequences of the fact that capital markets investing is now dominated by institutions not retail investors.

Moreover, Krug’s paper fills a scholarly void at the nexus of securities regulation and financial institution regulation and shows the wide scope of the latter. Here is her abstract:

This Article contends that more effective regulation of investment advisers could be achieved by recognizing that the growth of hedge funds, private equity funds, and other private funds in recent decades is a manifestation of institutionalization in the investment advisory context. That is, investment advisers today commonly advise these “institutions,” which have supplanted other, smaller investors as advisory clients. However, the federal securities statute governing investment advisers, the Investment Advisers Act of 1940, does not address the role of private funds as institutions that now intermediate those smaller investors’ relationships to investment advisers. Consistent with that failure, investment adviser regulation regards a private fund, rather than the fund’s investors, as both the “client” of the fund’s adviser and the “thing” to which the adviser owes its obligations. The regulatory stance that the fund is the client, which recent financial regulatory reform did not change, renders the Advisers Act incoherent in its application to investment advisers managing private funds and, more importantly, thwarts the objective behind the Advisers Act: investor protection. This Article shows that policymakers’ focus should be trained primarily on the intermediated investors – those who place their capital in private funds – rather than on the funds themselves and proposes a new approach to investment adviser regulation. In particular, investment advisers to private funds should owe their regulatory obligations not only to the funds they manage but also to the investors in those funds.

We are fortunate to have Kristin Johnson (Seton Hall) act as discussant for this paper.

This is the second installment of a series of previews of the papers being presented at the AALS Financial Institutions & Consumer Financial Services Section meeting this Sunday from 9 am to 10:45 am at the Marriott Wardman Park.

If the first paper I previewed looks at the challenges of disintermediation and allocating regulatory responsibility, the second paper that will be presented looks at another fundamental question facing financial institution regulation: how can regulation harness market discipline effectively? Christoph Henkel (Mississippi College School of Law) and Wulf Kaal (Univ. of St. Thomas) take a deep, nuanced look at one approach, contingent capital requirements, in their paper Taking Contingent Capital Seriously – The Prospect of Sequential Triggers in Europe and the United States. Contingent capital describes debt instruments that would automatically convert into equity upon the occurrence of a trigger event (which might be defined in a regulation). The trigger would be set to signal the failing health of a financial institution. Contingent capital provides an additional cushion for failing firms as well as a systemic risk buffer for financial markets.

Here is Henkel and Kaal’s abstract:

Contingent capital has great potential to help make systemically important financial institutions safer and help avoid another financial crisis. United States policy makers may not have fully utilized the potential of contingent capital. A draft by the EU Commission already suggests the mandatory issuance of contingent capital securities in the resolution phase of systemically important banks in Europe. The Dodd Frank Act mandates a study on the feasibility of contingent capital. This article proposes the use of contingent capital with a sequential trigger as an early preventative tool and as a reorganization tool before liquidation and independent of protection under bankruptcy proceedings. The first preventative trigger would convert a fixed amount of debt to equity at a stage when the institution is still sound on a micro prudential basis, but shows early signs of substantial weakening. The second reorganization trigger would increase voting rights for holders of contingent capital after conversion to equity at the reorganization stage. Sequential triggers could incentivize corrective actions by bank management. The second trigger introduces a quasi preparation stage for bankruptcy, independent of management decisions or corrective action by regulators. The proposal would work seamlessly with the regulatory framework proposed by the EU Commission and could provide U.S. policy makers with a new perspective on the multiple uses of contingent capital in the context of bank restructuring.

Contingent capital has emerged as one of the most innovative potential responses to the financial crisis. A few years back, Rob Beard blogged at the Conglomerate on CoCo bonds, one version of contingent capital.

Contingent capital has a long intellectual lineage, including proposals to replace or supplement capital requirements with subordinated debt. However, the track record in Europe of bank subordinated debt serving as a buffer and early warning system during the crisis was less than stellar.

One response to this: subordinated debt instruments were poorly designed. But how should sub debt, contingent capital, or other market discipline instruments be designed? We need to move beyond the “concept car – looks sexy at the auto fair” phase to doing the safety and road testing to make sure the car doesn’t explode in a turnpike pileup. Attention to the engineering details is the real strength of the Henkel and Kaal paper.

Designing these instruments properly is a high stakes job. The challenge facing market discipline proposals is that we most need them to work when markets go haywire. This is a challenge, indeed, for all financial institution regulation.

I look forward to hearing Henkel present the paper and to the comments by discussant Mehrsa Baradan (BYU).

On Sunday, January 8th, the AALS Section on Financial Institutions and Consumer Financial Services will be holding a panel discussing featuring an impressive list of papers selected from an annual Call for Papers. The panel will take place from 9 am to 10:45 am in the Marriott Wardman Park in Maryland Suite B. It is part of a full weekend of programs by the section, including a Saturday lunch speech by Federal Reserve Governor Sarah Bloom Raskin.

In advance of that panel, let me showcase the papers one by one. (The Conglomerate is all about emphasizing the scholarly aspects of the AALS Annual Meeting.) Each of the four papers deals with a different set of foundational challenges to the regulation of financial institutions. The first paper I will preview looks at three interrelated problems:

Distintermediation;
Which regulator should be responsible for consumer/investor protection; and
How to allocate regulatory responsibility generally, when innovative financial services do not fit neatly within traditional regulatory silos.

In many ways, the first challenge – disintermediation -- is an echo (an extremely loud one) of an old problem. Starting over 30 years ago the cozy world of depository banking was rocked first by the rise of rival intermediaries – money market mutual funds, deeper bond markets and more sophisticated structured finance, as well as other elements of shadow banking.

Now scholars are looking at another competitive wave coming from radical disintermediation, in which the web facilitates direct connections between lenders and borrowers. This is the subject of the first paper, Regulating On-line Peer-to-Peer Lending in the Aftermath of Dodd-Frank, by Eric Chaffee (Univ. of Dayton School of Law) and Geoffrey C. Rapp (Univ. of Toledo College of Law). Eric will be presenting the paper, which is forthcoming in the Washington & Lee Law Review. Andrew Verstein (Yale Law School) will serve as discussant. Andrew has also written a fantastic paper on the same topic, The Misregulation of Person-to-Person Lending, which is forthcoming in the U.C. Davis Law Review.

Chaffee and Rapp outline the business model and current regulatory treatment of peer-to-peer lending, which includes platforms like Prosper Marketplace and Lending Club. They examine how securities laws govern the investment by lenders and banking law regulates the borrower end. The Dodd-Frank Act required the GAO to look at the regulation of p2p lending, and the GAO responded by formulating two alternatives. The first was continued regulation of investors on p2p sites by the SEC and regulation of borrowers by agencies responsible for consumer financial regulation (i.e. the CFPB). The second is assigning regulation to a unified consumer regulator.

In the end, Chaffee and Rapp argue that regulatory heterogeneity is not bad, but actually the way to go. They argue for an “organic” approach to regulating P2P lending, allowing different regulators to govern different aspects of the business. Here is their abstract:

The 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act called for a government study of the regulatory options for on-line Peer-to-Peer lending. On-line P2P sites, most notably for-profit sites Prosper.com and LendingClub.com, offer individual “investors” the chance to lend funds to individual “borrowers.” The sites promise lower interest rates for borrowers and high rates of return for investors. In addition to the media attention such sites have generated, they also raise significant regulatory concerns on both the state and federal level. The Government Accountability Office report produced in response to the Dodd-Frank Act failed to make a strong recommendation between two primary regulatory options – a multi-faceted regulatory approach in which different federal and state agencies would exercise authority over different aspects of on-line P2P lending, or a single-regulator approach, in which a single agency (most likely the new Consumer Financial Protection Bureau) would be given total regulatory control over on-line P2P lending. After discussing the origins of on-line P2P lending, its particular risks, and its place in the broader context of non-commercial lending, this paper argues in favor of a multi-agency regulatory approach for on-line P2P that mirrors the approach used to regulate traditional lending.

Verstein comes out the other way and argues against SEC regulation of P2P lending and for unified regulation of p2p lending by the CFPB. Here is his abstract:

Amid a financial crisis and credit crunch, retail investors are lending a billion dollars over the Internet, on an unsecured basis, to total strangers. Technological and financial innovation allows person-to-person (“P2P”) lending to connect lenders and borrowers in ways never before imagined. However, all is not well with P2P lending. The SEC threatens the entire industry by asserting jurisdiction with a fundamental misunderstanding of P2P lending. This Article illustrates how the SEC has transformed this industry, making P2P lending less safe and more costly than ever, threatening its very existence. The SEC’s misregulation of P2P lending provides an opportunity to theorize about regulation in a rapidly disintermediating world. The Article then proposes a preferable regulatory scheme designed to preserve and discipline P2P lending’s innovative mix of social finance, microlending, and disintermediation. This proposal consists of regulation by the new Consumer Financial Protection Bureau.

This should be a lively discussion and of interest to our securities law junkies. Disintermediation is of course a topic a challenge for securities regulation generally, as other platforms are linking equity investors and companies seeking capital. Usha has been blogging about Sharespost and friend of the Glom Joan Heminway is working away on disintermediation too, looking at “crowdfunding” from the securities regulation angle (See her working paper here, see also, among others, Pope )

Governor Sarah Bloom Raskin of the Federal Reserve Board of Governors will be the key note speaker at the AALS Annual Meeting Financial Institutions & Consumer Financial Services Section lunch on Saturday January 7th from 12:15 to 1:30 PM. (To register ahead of time, the AALS code for the lunch is 1425). Before joining the Fed, she headed the State of Maryland's Department of Financial Regulation and was active in organizations of state and federal financial regulators. She has a wealth of other experience in the public and private sectors.

This will be one of three official on-site Financial Institutions/Consumer Financial Services events at the AALS Annual meeting. For a description of the other events, click here.

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