Banking Regulation
Corporate Governance and Countervailing Power
Brian R. Cheffins, 74(1) 1-52 (Winter 2018/2019)
The analysis of corporate governance has been a one-sided affair. The focus has been on “internal” accountability mechanisms, namely boards and shareholders. Each has become more effective since debates about corporate governance began in earnest in the 1970s but it is doubtful whether this process can continue. Correspondingly, it is an opportune time to expand the analysis of corporate governance. This article does so by focusing on three “external” accountability mechanisms that can operate as significant constraints on managerial discretion, namely governmental regulation of corporate activity, competitive pressure from rival firms, and organized labor. A unifying feature is that each was an element of a theory of “countervailing power” economist John Kenneth Galbraith developed in the 1950s with respect to corporations, an era when external accountability mechanisms did more than their internal counterparts to keep management in check.
Square Peg Meets Round Hole: Regulatory Responses to Challenges Created by Innovation in Banking
Jonice Gray Tucker, Daniel Stipano, Kari Hall, Brendan Clegg, and Anthony Carral, 75(4): 2491-2518 (Fall 2020)
During the past decade, an underlying tension between the financial sector’s embrace of innovative products and services and the regulatory framework that governs the industry surfaced—and that tension has since become even more acute during the COVID-19 pandemic. Facing pressure from customers’ twenty-first century expectations and competition from emerging fintechs, banks began implementing technological advances into their businesses even before disruptions to the U.S. financial system caused by the coronavirus placed a spotlight on the critical role those advances will play in banking’s future. This article highlights a number of areas of law where the governing framework erected during bygone eras has hindered the industry’s adoption of innovation and proven incompatible with the digital revolution that has changed the business of banking. This article also explores the successes and failures of a range of approaches adopted by the federal regulatory agencies responsible for the framework’s design, implementation and enforcement as they try to mitigate this tension. The degree to which these agencies embrace innovation in the industry, and use the tools at their disposal to encourage its continuation, will go a long way toward determining whether banks can weather this period of economic disruption, meet the changing needs of their customers, and fend off competition from industry upstarts.
The Treatment of Derivatives Under the SEC’s Net Capital Rule
Michael P. Jamroz, 76(1): 183-210 (Winter 2020-2021)
Every broker or dealer conducting a general securities business registered with the Securities and Exchange Commission (Commission) must comply with SEC Rule 15c3-1, the Net Capital Rule. The Net Capital Rule is designed to ensure that broker-dealers will have adequate liquid assets to meet their obligations to investors and liabilities to other creditors. The rule is complex and specifically addresses the liquidity, market, and counterparty credit risks associated with the proprietary positions of the broker-dealer.