Image: Flickr

In my last post—also a shameless plug for my recent article, “Boilerplate Shock”—I argued that boilerplate terms governing securities could serve as a trigger that transforms an isolated credit event into the risk of a broader systemic failure. I’ll now briefly explain why I see this danger—which I call “boilerplate shock”—as a general problem in securities regulation, not just some quirky feature of Eurozone sovereign debt (the focus of the paper and post). Any market where securities are governed by uniform boilerplate terms is vulnerable to boilerplate shock.

The nature of this phenomenon—systemic risk—is of course familiar, but its source in contract language is a little unintuitive. How could private contracts unravel an entire securities market or the world economy?

Coordination around uniform standards. 

In the back of our mind most of us probably still conceive of contracting as an activity that occurs among two, or perhaps a few, individuals or firms. But when standard terms are used by virtually all actors within a given market, it’s worth considering the collective impact of those terms as a distinct phenomenon.

Coordination’s benefits are well known. Consider uniform traffic signals. But coordination can also compound the effects of bad individual decisions.

As Charles Whitehead has argued, widespread “destructive coordination” among banks during the precrisis days helped generate systemic risks. When the credit markets froze, for example, firms using the same risk management formulas reacted in the same way at the same time. This helped transform isolated events into systemic ones—e.g., Lehman, the canonical example of a failure that triggered a de facto coordinated panic.

A similar risk, I argue, is present where participants in a securities market rely on the same standardized contract terms. Whether they were intended to or not, these terms will often control what happens in the event of certain legal emergencies, like a country departing the euro or Lehman declaring bankruptcy.

For example, if an effort by Greece to pay its bonds in “new drachmas” is rejected because of Boilerplate Contract Terms A and B, the market will surely be concerned that Terms A and B also govern the bonds of similarly situated borrowers, like Spain, Italy, etc. You’ll see that the borrowing premium the “peripheral” euro countries (the uppermost five lines: Ireland, Italy, Greece (biggest spike), Portugal, Spain) paid versus richer euro countries (Germany, France, the Netherlands, the three lowest lines) zoomed higher as worry over a Greece exit gripped markets in late 2011/early 2012, and again (to a lesser extent) because of Cyprus exit talk in early 2013:

Bloomberg. Click to enlarge.

Moreover, this panic occurred against a backdrop of unduly rosy assumptions (namely, that a departing euro country could convert its bonds into a new currency and thereby avoid default, a likely contagion trigger). I argue that the uniformity of boilerplate across these bonds would intensify these problems significantly since it’s likely to result in a declaration of default.

To my mind, this demonstrates that boilerplate securities contracts, in the aggregate, can be systemically significant. “Boilerplate Shock” introduces this concept and offers a modest proposal to mitigate its dangers in the Eurozone.

Beyond the euro, what about the risks of boilerplate shock in general?

Boilerplate shock is probably an inherent and permanent risk in any securities market.

Securities contracts are quintessential candidates for boilerplate. They are used by sophisticated parties for repeat or similar transactions and are drafted quickly—sometimes in three and a half minutes. The (correct) assumption is that they are more efficient for the parties that use them.

I’d like to begin thinking about how contracts can be drafted with a view to systemic risk mitigation, or at least to avoid exacerbating existing risks. But I think this is a hard problem that lacks an off-the-shelf solution:

• The nature of the risk is that it is a byproduct, not the result of intentional choices about risk allocation. This is the reason for the information-forcing default rule I propose in the Eurozone.

• The risk is also an externality: it is severe because of its collective impact. The parties do not bear the primary risk that uniform contracts will result in a meltdown, and in the unlikely event a crash happens (1) no individual party will be to blame and (2) at least one party to the initial transaction (the initial purchaser of a bond, for example) will probably no longer hold the asset, because most systemically significant securities are actively traded on the secondary market.

But banning or discouraging boilerplate is not the answer:

• The risk that a bunch of assets governed by the same terms will plummet in value is not only an externality. Risk allocation among parties might improve if scrutiny of existing securities boilerplate improves. The terms can evolve.
  
  
• A requirement to craft unique, artisanal terms—disclosures, subordination provisions ("flip clauses"), choice of governing law—for each individual securities transaction would be criminally inefficient.
  
  
• A requirement to craft unique contract terms might even be unjustified on risk-management terms alone, because it would increase drafting errors.

It's tricky to mitigate the risks of securities boilerplate.

Some options for places to start:

1. Validation by third parties: perhaps issuers could use risk-rated contract templates. For example, see credit ratings…but see credit ratings.
2. Culture: inculcate systemic risk mitigation as a professional norm among private sector lawyers? In principle, this could work. The number of lawyers who draft these contracts is pretty small. In practice, one could envision many complications.
3. Insurance: encourage the development of derivatives to account for the possibility of boilerplate shock? Like some of the other solutions, this one presumes some agreement on what terms create the risk of boilerplate shock. It could also encourage new forms of moral hazard.
4. Mandatory regulation: some public entity could be tasked with the mission of proactively identifying and combating the risk of boilerplate shock in contract practices. Arguably a natural choice given that the risk is an externality. Nevertheless, I’m a little skeptical. First of all, who would do it? A domestic regulator, like the SEC or CFTC, that might be dodged on jurisdictional grounds? An international institution, which is arguably more subject to capture? More generally, regulation seems like a heavy-handed first choice.

In sum, when standardized and aggregated, choices that determine legal risks—e.g., contract terms designating governing law, payment priority—can create the same hazards as choices about business risks. This suggests that contract terms should be taken seriously as possible sources of systemic risk alongside more familiar sources, like leverage and credit quality.

Securities contracts as a source of systemic risk—what do you think?

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© Disney, “Duck Tales”

I expressed concern in my last post that uniform contract terms could destabilize securities markets in unexpected ways. In a recent paper, I dub this risk “Boilerplate Shock.” The paper uses boilerplate terms in Eurozone sovereign bonds as a case study, but I argue that any market in which a lot of securities are governed by uniform contract terms is vulnerable to boilerplate shock. In this post, I will focus on the Eurozone and my proposed solution to the risk of boilerplate shock there.

One major problem is that no one really knows how to deal with sovereign debt obligations denominated in a currency that still exists but is no longer used by the debtor. A partial breakup of the European Monetary Union would trigger some question marks in commercial law and private international law (among other things).

In the Eurozone sovereign lending market, bond contracts typically contain standardized language specifying:

(a)  choice of governing law (often foreign), and
(b)  currency of payment (euros).

The combined effect of these clauses, I argue, is to render any country that departs the euro more likely to default on its debt. Whatever the impact of the departure itself, a forced default would make things much worse for Europe and the world economy.

Leading scholars have concluded or strongly suggested that a sovereign that changes currencies can redenominate (convert) its bonds to its new currency even where the contract is governed by foreign law (e.g., Philip Wood (p. 177), Michael Gruson (p. 456), Arthur Nussbaum (pp. 353-59), Robert Hockett (passim)). As a descriptive matter, I believe this to be a mistaken interpretation of New York (and probably English) private international law and commercial law (see “Boilerplate Shock” pp. 47-67). But normatively, I agree: a sovereign should be able to redenominate its bonds under certain circumstances. Among other things, the alternative would make currency union breakups far more dangerous than they already are.

In brief:

• The prevailing consensus underestimates the risk that a departing Eurozone member’s attempt to redenominate its sovereign bonds into a new currency will be ruled a default.
  
  
• Since the bonds of other struggling euro countries are largely governed by the same boilerplate terms ((a) and (b) above), this misapprehension has the potential to be particularly damaging. In addition to surprising the market (which appears to incorporate this consensus), it is likely to spread beyond the immediate debtor to the bonds of similarly situated countries that have issued under the same terms.
  
  
• Same for CDSs (which are likewise often governed by foreign law, usually New York).
  
  
• Thus, given the widespread use of terms (a) and (b), a ruling that a departing country cannot pay its euro-denominated contracts in a new currency could cause the market to demand unsustainable premiums from other weak debtors.
  
  
• This could cause Eurozone countries to lose market access. Greece is not TBTF in any sense, but some of its neighbors are—and are also too big for the EU (including the ECB) and IMF to bail out. Italy (the world’s 9th largest economy) and Spain (13th) come to mind.

Thus, if my commercial law/private international law analysis is right, these boilerplate contracts could end up playing quite a big role in the event of any euro breakup. 

To mitigate this risk of boilerplate shock, I suggest a new rule of contract interpretation. The proposal is detailed at pp. 67-71 of the article. I suggest commercially significant jurisdictions adopt it by statute. Here is a quick summary.

Any sovereign that:

1. Belongs to an international monetary union, and
2. Issues bonds in the currency of that monetary union subsequent to the adoption of this rule, and
3. Leaves the monetary union and introduces its own currency,

shall retain the right to redenominate its bond obligations into its new currency, UNLESS the sovereign has affirmatively waived the right to redenominate its bonds.

You’ll notice this is a default rule—merely a presumption of the right to redenominate—not a mandatory rule. It is also prospective-only: it does not apply to existing issuances. It also does not protect sovereigns that issue in foreign currency (e.g., Argentina), only those that are monetary union members and issue in the common currency (e.g., France).

The reason for these limitations is to minimize unintended consequences and near-term disruption to the market, but also to embody the relatively modest objectives of the rule. It is an information-forcing default rule that is intended to facilitate better risk management by parties. It is not a “save the world” rule.

The challenge, as I’ll discuss in my next post on the paper, is not that redenomination would be ruled impermissible when it ought to be available (otherwise, that might suggest a mandatory “pro-redenomination” rule). It is that the likely effect of these boilerplate terms—to prohibit redenomination—was almost certainly not bargained for and is largely unknown to parties. This market failure has, in turn, created latent risks to the broader financial system and the existing legal tools are poorly suited to address them.

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By now, the risk that a distressed European nation such as Greece might leave the Eurozone and thereby spark global economic calamity is well known. Regular readers of this blog may even privately relish the prominence of the issue. Not since the days of the gold standard has international monetary policy come so close to being a socially acceptable topic of dinner conversation.

As I noted in my first post, observers rightly perceive the Eurozone sovereign debt crisis to be driven by political and economic forces. But many consequences of a euro breakup would be determined by law, including sources of American (specifically New York) private law.

This is a complex issue. I try to address it more fully in a new article, "Boilerplate Shock," which I've just posted on SSRN.

In brief, and to continue picking on Greece, one key question in the event of a euro breakup would be: would a court recognize an attempt by Greece to convert its euro-denominated debt into its new currency, or would it instead insist that Greece pay in euros, the currency of contract? The answer is important because, as a practical matter, requiring payment in euro would be tantamount to forcing a default.

That's the familiar narrative, anyway. And I agree. But I believe that the ubiquity of boilerplate terms in these bonds—specifically, clauses selecting governing law (usually foreign) and currency of payment (euro)—is likely to make any dispute over redenomination even more damaging than this suggests.

In the article, I argue that the sparse literature on the question of redenominating sovereign bonds overlooks some sources—especially cases interpreting New York contract law and private international law—that, if extended to Eurozone sovereign bonds, could surprise the market and cause serious global repercussions. I argue that the reason for this is not only that the dominant view overlooks what are likely controlling sources of law. It is that standardization of contract terms across the Eurozone sovereign lending market makes the stakes of surprise that much higher.

If Greece's attempt to redenominate its bonds is declared a default, then the fact that the operative terms in Italian, Spanish, Irish, etc. sovereign bonds are the same or similar makes markets likely to demand unsustainable premiums from those countries. Capital and investor flight could be very rapid. We have seen several previews of this movie over the past few years in the Eurozone, and each time official-sector bailout institutions have saved the day. But the European Union/European Central Bank and IMF probably do not have the resources to stop a broad-based bank run of this nature, to say nothing of the political support necessary to attempt it.

Maybe none of that will happen. Nevertheless, the potential for uniform contract terms to create risk not just to individual third parties but to securities markets seems likely to grow at least as fast as those markets. Using Eurozone sovereign bonds as a case study, I introduce the term "boilerplate shock" to describe the potential for standardized contract terms—when they come to govern the entire market for a given security—to transform an isolated default on a single contract into a threat to the market of which it is a part, and, possibly, to the economy in general. My larger objective here is to foster a discussion of the potential for securities law and private-sector securities lawyers to manage (or alternatively, to contribute to) systemic risk.

I've posted an abstract below and will be returning to the subject. I look forward your comments.

Boilerplate Shock abstract:

No nation was spared in the recent global downturn, but several Eurozone countries arguably took the hardest punch, and they are still down. Doubts about the solvency of Greece, Spain, and some of their neighbors are making it more likely that the euro will break up. Observers fear a single departure and sovereign debt default might set off a “bank run” on the common European currency, with devastating regional and global consequences.

What mechanisms are available to address—or ideally, to prevent—such a disaster?

One unlikely candidate is boilerplate language in the contracts that govern sovereign bonds. As suggested by the term “boilerplate,” these are provisions that have not been given a great deal of thought. And yet they have the potential to be a powerful tool in confronting the threat of a global economic conflagration—or in fanning the flames.

Scholars currently believe that a country departing the Eurozone could convert its debt obligations to a new currency, thereby rendering its debt burden manageable and staving off default. However, this Article argues that these boilerplate terms—specifically, clauses specifying the law that governs the bond and the currency in which it will be paid—would likely prevent such a result. Instead, the courts most likely to interpret these terms would probably declare a departing country’s effort to repay a sovereign bond in its new currency a default.

A default would inflict damage far beyond the immediate parties. Not only would it surprise the market, it would be taken to predict the future of other struggling European countries’ debt obligations, because they are largely governed by the same boilerplate terms.  The possibility of such a result therefore increases the risk that a single nation’s departure from the euro will bring down the currency and trigger a global meltdown.

To mitigate this risk, this Article proposes a new rule of contract interpretation that would allow a sovereign bond to be paid in the borrower’s new currency under certain circumstances. It also introduces the phrase “boilerplate shock” to describe the potential for standardized contract terms drafted by lawyers—when they come to dominate the entire market for a given security—to transform an isolated default on a single contract into a threat to the broader economy. Beyond the immediate crisis in the Eurozone, the Article urges scholars, policymakers, and practitioners to address the potential for boilerplate shock in securities markets to damage the global economy.

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Greetings, Glommers! (and hello, Janet and Mario*!)

It’s an honor to join this extremely sharp and thoughtful community of corporate and commercial law scholars for the next two weeks.  The Conglomerate has long been one of my favorite law blogs and it’s truly a privilege to walk among these folks for a time (if a bit daunting to follow not just them but Urska Velikonja and her excellent guest posts).  Thanks to Gordon, David, and their Glom partners for inviting me to contribute.

By way of biographical introduction, I’m currently a Visiting Assistant Professor at the University of Denver Sturm College of Law, where I teach International Business Transactions and International Commercial Arbitration.  Last year, I did a VAP at Hofstra Law School (and taught Bus Orgs and Contracts).

In the next few weeks, I’ll be exploring a number of issues related to law and global finance.  I have a particular interest in currencies and monetary law, or the law governing monetary policy.  Two of my current projects (on which more soon) address legal aspects of critical macroeconomic policy questions that have emerged since 2008: U.S. monetary policy and the Eurozone sovereign debt crisis.

Without further ado, I will take a page from Urska and kick off my residency here with a somewhat meta question: should scholars refrain from writing about legal issues in macroeconomics, specifically monetary policy?

One thinks of monetary policy decisions—whether or not to raise interest rates, purchase billions of dollars of securities on the secondary market ("quantitative easing"), devalue or change a currency—as fundamentally driven by political and economic factors, not law.  And of course they are.  But the law has a lot to say about them and their consequences, and legal scholarship has been pretty quiet on this.

Some concrete examples of the types of questions I’m talking about would be:

• Pursuant to its dual mandate (to maintain price stability and full employment), what kinds of measures can the Federal Reserve legally undertake for the purpose of promoting full employment?  More generally, what are the Fed’s legal constraints?
• What recognition should American courts extend to an attempt by a departing Eurozone member state to redenominate its sovereign debt into a new currency?

When it comes to issues like these, it is probably even more true than usual that law defines the boundaries of policy.  Legal constraints in the context of U.S. monetary policy appear fairly robust even in times of crisis.  For example, policymakers themselves often cite law as a major constraint when speaking of the tools available to the Federal Reserve in combating unemployment and deflation post-2008.  Leading economics commentators do too.  Yet commentary on “Fed law” is grossly underdeveloped.  With the exception of a handful of impressive works (e.g., by Colleen Baker and Peter Conti-Brown), legal academics have largely left commentary on the Fed and macroeconomics to the econ crowd.

A different sort of abstention characterizes legal scholarship on the euro crisis.  Unlike the question of Fed power, there is a burgeoning literature on various “what-if” euro break-up scenarios.  But this writing tends to focus on the impact on individual debtors and creditors, not on the cumulative impact on the global financial system.  Again, the macro element is missing.

It is curious that so many legal scholars would voluntarily absent themselves from monetary policy debates.  The subtext is that monetary policy questions are either normatively or descriptively beyond the realm of law.  If that is scholars’ actual view, I think it is misguided.  But maybe the silence is not as revealing as all that.

1. One issue is sources.  You will not find a lot of useful caselaw on the Fed’s mandate or the Federal Reserve Act of 1913, and the relevant statutes and regulations are not very illuminating.  Further, it’s a secretive institution and that makes any research (legal or otherwise) on its inner workings challenging.
   
   
2. Another issue is focus.  Arguably the natural home of legal scholarship on domestic monetary issues, for example, should be administrative law.  But the admin scholarly gestalt is not generally as econ-centric as, say, securities law.  Meanwhile, securities scholars tend to focus on microeconomic issues like management-shareholder dynamics.
   
   
3. A final possibility, at least in the international realm, is historical.  After World War II, Bretton Woods established a legal framework intended to minimize the chance that monetary policy would again be used as a weapon of war.  The Bretton Woods system collapsed over forty years ago, the giants of international monetary law (Frederick Mann, Arthur Nussbaum) wrote (and died) during the twentieth century, and now even some of the leading scholars who followed in their footsteps have passed away.  At the same time, capital now flows freely across borders and global financial regulation has become less legalized in general.  These factors plus the decline of exchange-rate regulations (most countries let their currencies float) may have undermined scholars’ interest in monetary law.  But as the ongoing euro saga demonstrates, international monetary law and institutions remain as critical as ever.

These are some possible explanations for why legal scholars have largely neglected questions of monetary law, but I’m sure I’ve overlooked others.  What do you think?

*Pictured are Janet Yellen and Mario Draghi, chiefs, respectively, of the Federal Reserve and the European Central Bank.

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The AALS Section on Financial Institutions & Consumer Financial Services and Section on European Law are pleased to invite you to attend their joint program, Taking Stock of Post-Crisis Reforms: Local, Global, and Comparative Perspectives on Financial Sector Regulation, at the AALS 2014 Annual Meeting in New York City, on Friday, January 3, at 10:30 a.m. – 12:15 p.m.

The program will feature three paper presentations:

• Arthur Wilmarth (George Washington University), Citigroup: A Case Study in Managerial and Regulatory Failures, available at http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2370131
• Hilary Allen (Loyola University New Orleans), Why Wall Street Isn’t in Jail: The Unpunishable Moral Failures that Helped Cause the Financial Crisis, and How to Address Them in the Future, available at http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2336678
• Kazi Sabeel Rahman (Harvard University), Managerialism, Structuralism, and Moral Judgment: Law, Reform, Discourse, and the Pathologies of Financial Reform in Historical Perspective, available at http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2368292

Anna Gelpern (Georgetown) and Robert Hockett (Cornell) will serve as panel discussants, and Peter Lindseth (University of Connecticut) will moderate the discussion.

Immediately following the joint program, at 12:15 p.m. on January 3, 2014, The Section on Financial Institutions & Consumer Financial Services will host a luncheon with keynote remarks by Sean Hagan, General Counsel of the International Monetary Fund. 

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Two bits of news, and one interesting take:

1.    How do you privatize a taken-over bank?  In Britain, they are turning to the investment bankers for advice:

Some British lawmakers have called for the shares to be sold directly to retail customers to allow them to benefit from any potential increase in the firms’ future share prices. A similar process in the 1980s led many British taxpayers to buy shares in former state-owned companies like the energy utility British Gas.

Lloyds is likely to be the first to be privatized, as its current share price is above the government’s breakeven price of 61.20 pence, or 93 cents. Shares in the Royal Bank of Scotland, however, are still trading 33 percent below what the British government says it needs to recoup its investment.

It is interesting how much faster this sell off process was in the United States.

2.    Here's a nice profile, and perhaps also a source-greaser, of Mark Carney, the Canadian being brought in to head the Bank of England.   It just about inconceivable that something similar would happen in the United States, but this look-abroad-for-your-central-banker thing is a new thing, as Israel, Britain, and Canada can tell you.

3.     Here's Daniel Drezner on whether the FOMC statement that sent the markets into a tizzy and has had the board issuing plenty of nervous clarifications since, was due to an adoption of the perspective of the Basel Committee.

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Over at Opinio Juris, I have an essay up reviewing Katerina Linos's excellent book on The Democratic Foundations of Policy Diffusion.  It is part of an online symposium with lots of august participants, as well as an august author, so do give it a look.  Here's a taste:

Katerina Linos knows the – always surprising to me, but repeatedly tested by political scientists – fact that countries adopt the policies of their similar, often nearby, neighbors. In The Democratic Foundations Of Policy Diffusion, she argues that there is good news underlying this trend of cross-border adoption. Rather than being a function of bureaucrats forcing, say Swiss health care models down the throats of American citizens, she shows that, across countries, and even among Americans themselves, 1) citizens prefer policies that are proposed with evidence of foreign and international organization endorsement; and 2) politicians invoke this sort of evidence when trying to mobilize support for their programs.

This might strike your average American, who, if she is anything like me, is hardly maximally cosmopolitan, as implausible. How many voters, let alone the median American voters political scientists think about the most, care about how they do things in Canada, or can be bothered to find out? Will they really choose the suite of policies proposed by the leader who does the best job invoking the recommendations of the United Nations on the campaign trail?

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Call for Papers

AALS Joint Program of the Financial Institutions & Consumer Financial Services Section and the European Law Section

Taking Stock of Post-Crisis Reforms: Local, Global, and Comparative Perspectives on Financial Sector Regulation

AALS Annual Meeting, January 3, 2014

New York, New York

    The AALS Section on Financial Institutions & Consumer Financial Services and Section on European Law are pleased to announce that they are sponsoring a Call for Papers for their joint program on Friday, January 3, at the AALS 2014 Annual Meeting in New York, New York.

    The topic of the program and call for papers is “Taking Stock of Post-Crisis Reforms: Local, Global, and Comparative Perspectives on Financial Sector Regulation.” The financial crisis of 2008 was truly a global crisis, and the world continues to face a wide range of post-crisis economic and political challenges. Today, several years after the market turmoil began, both the United States and the European Union are in the midst of major regulatory reforms in the financial services sector. The effects of these financial regulation reforms however, remain unclear. Structural reform in the U.S. is thus far limited to a yet-to-be finalized "Volcker Rule," while in the U.K. and the Eurozone, respectively, Vickers- and Liikanen-style "ring-fencing" remain incomplete if not inchoate. Debate in the U.S. still rages around whether and how smaller "community banks" should be regulated differently from megabanks, while the E.U. continues to debate whether to form a "banking union" at all and, if so, what it might or could entail, given various political constraints. Meanwhile, the U.S. Federal Reserve continues to innovate in the realm of monetary policy in the absence of functional fiscal policy, while the European Central Bank moves furtively toward acting as a full Fed-style central bank capable of backstopping sovereign debt instruments and providing real liquidity. Where might these multiple developments be ultimately heading, and what might the Americans and Europeans learn from each other as they grope tentatively forward? What broader implications do they raise for political accountability and legitimacy in a post-crisis world?

Form and length of submission

     The submissions committee looks forward to reviewing any papers that address the foregoing topics. While the preference will be given to papers with a clearly comparative focus, the committee’s overall goal is to select papers that will facilitate discussion of, and comparisons between, American and European approaches to various aspects of financial services regulation. Potential topics include macro-prudential regulation, consumer protection, monetary policy, regulation and supervision of financial intermediaries, structural reforms, and related issues of political accountability and legitimacy.

    Abstracts should be comprehensive enough to allow the 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 Saule Omarova at [email protected] and Peter Lindseth at [email protected].

    The deadline for submission is September 3, 2013.

    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, 2013.

    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. Papers co-authored with a person ineligible to submit on their own may be submitted by the eligible co-author.

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

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So I've been fascinated by the Cyprus story, ignorant though I am of many of the details.    If you're like me on one or the other count (ignorance or fascination), check out our friends at Credit Slip:

Anna Gelpern on

The inevitable interconnectedness of banks and governments

Adam Levitin on

the possibility of more EU bank runs 

whether the deposit tax would have been worth it (answer: no)

what happened to absolute priority

Stephen Lubben on how not to do a bailout

More than anything, I keep picturing myself as a depositor with less than 100,000 euros in my "guaranteed" account, looking at an overnight "tax" that strips me of 6.75%of my holdings.  I would not be happy.

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While Americans worry that there isn't enough accountablility being imposed on banks for the financial crisis, the Times observes that European banks are forking over billions in penalties to their regulators.  LIBOR is one thing, there's an insurance product that is causing no end of headaches, and:

European banks are expected to pay a total of about $25 billion for settlements and client compensation, so far. HSBC has to write the biggest check, paying $1.9 billion for lapses in its anti-money laundering controls. (A number of banks, however, have made provisions for potentially larger amounts.)

ING Bank, part of the Dutch financial giant ING Group, reached a $619 million settlement for allegation of sanction violations in June. Standard Chartered, based in London, agreed to pay a total of $667 million in two separate money-laundering claim settlements in August and December.

To be sure, American regulators haven't exactly eased off on sanctioning boycott avoiders.  But this action in Europe is all worth keeping an eye on, if only for the possibility that financial regulation could go the way of antitrust or accounting, where global standards are set by European regulators.  It is too soon to suggest that something like this is happening yet, and there is a great deal of work being done on harmonizing global standards so that European rules do not get applied extraterritorially.  But it isn't outside the realm of possibility.

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I'm pleased to be a part of the organizing committee for this second research forum, which I very much hope will include a strong contingent of international economic papers law papers.  To apply, you need only complete an abstract.  The call is reprinted below, please feel free to get in touch if you have any questions:

Second Annual American Society of International Law Research Forum

October 20-21, 2012, Athens, GA

The American Society of International Law calls for submissions of scholarly paper proposals for the ASIL Research Forum to be held at the University of Georgia School of Law on October 20-21, 2012.

The Research Forum, a Society initiative introduced in 2011, aims to provide a setting for the presentation and focused discussion of works-in-progress by Society members. All ASIL members are invited to attend the Forum, whether presenting a paper or not.

Interested participants should submit an abstract (no more than 500 words in length) summarizing the scholarly paper to be presented at the Forum. Papers can be on any topic related to international and transnational law and should be unpublished (for purposes of the call, publication to an electronic database such as SSRN is not considered publication). Interdisciplinary projects, empirical studies, and jointly authored papers are welcome. Member proposals should be submitted online here by April 15. Proposals will include 1) the name, institutional affiliation, professional position, and contact information for the author(s), and 2) an abstract. Review of the abstracts will be blind, and therefore abstracts should not include any identifying information about the author. Abstracts containing identifying information will not be reviewed. Proposals will be vetted by the Research Forum Committee with selections to be announced by July 15

At present, it is the intent of the Research Forum Committee to organize the selected paper proposals around common issues, themes, and approaches. Discussants, who will comment on the papers, will be assigned to each cluster of papers. All authors will be required to submit a draft paper four weeks before the Research Forum. The expectation is that drafts will be posted on the Research Forum website.

The 2012 ASIL Research Forum Committee:

Laura Dickinson (George Washington), Co-Chair

Timothy Meyer (Georgia), Co-Chair

Jose Alvarez (NYU)

Laurence Helfer (Duke)

Hari Osofsky (Minnesota)

Kal Raustiala (UCLA)

David Zaring (Wharton)

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Something close to a plurality of corporate scholars are working on papers related to the financial crisis in the United States.  I think it is much less likely that we will see something similar with the potentially even more dramatic European financial crisis.  Here's why:

• A lot of what is happening in Europe is politics and markets, not law.  For sovereign debt, lawyers put together the instruments, and creditors can in theory (but not in practice) sue on default.  Ditto for the credit default swaps.  But the decisions about whether to issue them, whether to buy them... those aren't legal decisions, they are market ones. And they are the ones of interest in the crisis.
• Similarly, the decision to bail out Greece isn't a matter of a European agency acting creatively.  Instead, every member of the EU passed a law permitting a bailout.  Again, there's not much to chew on there in terms of administrative law.
• Of course, it isn't like there is no law to apply.  What the EU and the ECB do is governed by law ... but that's European law, it's hard, and I doubt American academics will have much to say about it.
• There are some questions of interest, of course.  Consider MF Global’s bankruptcy filing, which has some stuff on how its exposure to European debt wasn’t working for its regulators or Moody’s.  Might be something interesting there for lawyers.  But generally, I'm not holding my breath.
• I predict the sovereign debt experts in the academy - your Gulatis and your Gelperns - will have plenty of wisdom to impart, by the way.  But that's only a smidge of the corporate law academy, rather than, like, most of it.

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• Daniel Drezner argues that Europe is likely to come out of the current crisis pursuing even more integration, and I must say, I'm betting on that as well.  It's all well and good to decry the loss of control over monetary policy that the Euro represents, but it's also quite the form of status quo bias (and the decrying is the province of the always far-seeing macroeconomists, for that matter).  In fact, I can't really see how seeking the Euro breakup is different than arguing that Massachusetts ought to be able to mint its own fiat Romneys, or whatever, oh, and also reinstall border controls and implement free trade policies with other states in its own unique fashion.  And if that seems silly, why would Portugal want to do the same thing?
• Stephen Bainbridge is now distinguished, and not just by his impressive holiday recipes.
• And Brian Galle opens what - as he himself will tell you - is a sure to be transfixing series of posts on unemployment insurance, which I'm sure he seeks to own the way I own American foreign investment regulation.

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This afternoon, I attended an excellent session at the Law & Society Annual Meeting entitled "Integration Through Law in the European Union." The panelists are members of this discussion group at the European University Institute. My former Wisconsin colleague, Dave Trubek, noted in response to the presentations that all of the panelists seemed to agree on one point: something unique is happening with EU law (or, in Dave's words, "the EU is a different animal, not like anything else we have ever studied"), and the challenge is to figure it out.

That seems right to me, and it's the reason I have long been drawn to the subject. (Though I have never published on EU law, that will finally change next year, as I am helping the BYU Law Review to organize a symposium on legal origins.) When I was in law school in the late 1980s, I took several classes on the European Community at Chicago, and we had a very naive view of integration. The word "harmonization" is used in Europe, but what does that mean? That all national laws would be identical, marching in lockstep with directives from Brussels? That didn't happen in the late 1980s, and it certainly isn't happening now.

What are the implications for corporate law? More about that in some future posts ...

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Donald Tusk of the Civic Platform Party will become the new prime minister of Poland, ousting Jaroslaw Kaczynski of the Law and Justice Party. Even if you don't follow Polish politics, you may recall the prominent role played by the Kaczynski twins (Jaroslaw and his brother, Lech, who remains as Poland's President) in disrupting last summer's negotiations over a new treaty for the European Union.

Poland's people favor Europe much more than the Kaczynski twins, and it appears that Poles are tired of the divisive leaders, who rode into office on a platform of "fighting corruption, exposing communist-era collaborators, and helping those who felt left out by reforms that transformed Poland into a capitalist economy 18 years ago." In contrast, Tusk and the Civic Platform Party are focused on the future, with promises of free-market reforms.

Exit polls suggest that the Civic Platform Party will come away with over 40% of the vote, but in the absence of an absolute majority, the Civic Platform Party will form a coalition government with the Polish Peasants Party. So the pro-business party will join with the party of the peasants, having defeated law and justice?

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