The financial crisis witnessed market failures involving an array of financial market intermediaries, including banks, broker dealers, and various investment funds. The crisis followed a decades-long transformation of the U.S. financial services sector that blurred the boundaries between banking and securities businesses. New intermediaries emerged and connected individuals and firms seeking financing to investors in capital markets. Intermediaries devised and “made markets” for new and often illiquid and opaque financial instruments. Many of these new markets froze in the crisis. In response, Dodd-Frank and other financial reforms imposed a grab bag of new rules on financial intermediaries.
The effects of these reforms remain unclear. Moreover, policymakers and scholars disagree about the precise problems that reforms should address. For example, the SEC’s headline-grabbing suit against Goldman Sachs over the ABACUS transactions focused on conflicts of interest for a large financial conglomerate. Other financial reforms target the opacity of pricing in financial markets or the solvency or liquidity risk faced by intermediaries.
Banking and securities scholars often look at similar market dynamics through radically different lenses. Banking scholars focus on solvency crises, banking runs, and prudential rules on the risk-taking, leverage, and liquidity of intermediaries. Securities scholars emphasize the problems of conflicts of interest and asymmetric information. They look to the traditional policy levers in their field: disclosure, fiduciary duties, and corporate governance.
The dearth of dialogue between these two fields creates 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 leave 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 also broker-dealers, investment advisers and funds, and the regulation of trading and markets.
Three papers selected from a call for papers will be presented. “The Federal Reserve’s Use of International Swap Lines,” Colleen M. Baker (Notre Dame); and “The Case for Decentralizing Financial Oversight: A Strategy for Overseeing the Derivatives Industry,” Jeffrey Manns (George Washington Univ.); and Anita Krug (Univ. of Washington) “Investment Company as Instrument: The Limitations of the Corporate Governance Regulatory Paradigm”.
Business Meeting of Section on Financial Institutions and Consumer Financial Services at Program Conclusion.
Business Meeting of Section on Securities Regulation at Program Conclusion.