Hal S. Scott

Nomura Professor of International Financial Systems

Director, Program on International Financial Systems

Biography

Hal S. Scott is the Nomura Professor and Director of the Program on International Financial Systems (PIFS) at Harvard Law School, where he has taught since 1975.  He teaches courses on Capital Markets Regulation and International Finance.  He has a B.A. from Princeton University (Woodrow Wilson School, 1965), an M.A. from Stanford University in Political Science (1967), and a J.D. from the University of Chicago Law School (1972).  In 1974-1975, before joining Harvard, he clerked for Justice Byron White.

The Program on International Financial Systems, founded in 1986, engages in a variety of research projects.  Its book, Capital Adequacy Beyond Basel (Oxford University Press 2004), examines capital adequacy rules for banks, insurance companies and securities firms.  The Program also organizes the annual invitation-only U.S.-China, U.S.-Europe and U.S.-Japan Symposia on Building the Financial System of the 21st Century, attended by financial system leaders in the concerned countries.  It has also offered symposia for U.S.-India and U.S.-Latin America.  The Program also offers professional and educational programs.  In 2016, it conducted a week long course with the International Organization of Securities Commissions (IOSCO) for securities regulators around the world.

Professor Scott's books include the law school textbook International Finance: Transactions, Policy and Regulation (21st ed. Foundation Press 2016); The Global Financial Crisis (Foundation Press 2009); and Connectedness and Contagion (M.I.T. Press 2016).

Professor Scott is the Director of the Committee on Capital Markets Regulation, a bi-partisan non-profit organization dedicated to enhancing the competitiveness of U.S. capital markets and ensuring the stability of the U.S. financial system via research and advocacy. He is also  a member of the Bretton Woods Committee and a member of the Market Monitoring Group of the Institute of International Finance.  He is a past President of the International Academy of Consumer and Commercial Law, a past Governor of the American Stock Exchange (2002-2005), and a past independent director of Lazard, Ltd. (2006-2016).

Areas of Interest

Hal S. Scott, Connectedness and Contagion: Protecting the Financial System from Panics (MIT Press 2016).
Categories:
Banking & Finance
,
Government & Politics
Sub-Categories:
Financial Markets & Institutions
,
Financial Reform
,
Fiduciary Law
,
Banking
,
Congress & Legislation
Type: Book
Abstract
The Dodd–Frank Act of 2010 was intended to reform financial policies in order to prevent another massive crisis such as the financial meltdown of 2008. Dodd–Frank is largely premised on the diagnosis that connectedness was the major problem in that crisis—that is, that financial institutions were overexposed to one another, resulting in a possible chain reaction of failures. In this book, Hal Scott argues that it is not connectedness but contagion that is the most significant element of systemic risk facing the financial system. Contagion is an indiscriminate run by short-term creditors of financial institutions that can render otherwise solvent institutions insolvent. It poses a serious risk because, as Scott explains, our financial system still depends on approximately $7.4 to $8.2 trillion of runnable and uninsured short-term liabilities, 60 percent of which are held by nonbanks. Scott argues that efforts by the Federal Reserve, the FDIC, and the Treasury to stop the contagion that exploded after the bankruptcy of Lehman Brothers lessened the economic damage. And yet Congress, spurred by the public’s aversion to bailouts, has dramatically weakened the power of the government to respond to contagion, including limitations on the Fed’s powers as a lender of last resort. Offering uniquely detailed forensic analyses of the Lehman Brothers and AIG failures, and suggesting alternative regulatory approaches, Scott makes the case that we need to restore and strengthen our weapons for fighting contagion.
Hal S. Scott & Anna Gelpern, International Finance: Transactions, Policy and Regulation (Found. Press 21st ed. 2016).
Categories:
Corporate Law & Securities
,
International, Foreign & Comparative Law
,
Banking & Finance
Sub-Categories:
Financial Markets & Institutions
,
Finance
,
Financial Reform
,
Securities Law & Regulation
,
Corporate Law
,
International Monetary Systems
Type: Book
Capital Adequacy beyond Basel: Banking, Securities, and Insurance (Hal S. Scott ed., Oxford Univ. Press 2005).
Categories:
Corporate Law & Securities
,
Banking & Finance
Sub-Categories:
Banking
,
Finance
,
Insurance Law
,
Securities Law & Regulation
Type: Book
Abstract
This book is timely since the Basel Committee on Banking Supervision at the Bank for International Settlements is in the process of making major changes in the capital rules for banks. It is important that capital adequacy regulation helps to achieve financial stability in the most efficient way. Capital adequacy rules have become a key tool to protect financial institutions. The research contained within the book covers some key issues at stake in the capital requirements for insurance and securities firms. The contributors are among the leading scholars in financial economics and law. Their contributions analyze the use of subordinated debt, internal models, and rating agencies in addition to examining the effect on capital of reinsurance, securitization, credit derivatives, and similar instruments. Available in OSO: http://www.oxfordscholarship.com/oso/public/content/economicsfinance/0195169719/toc.html
Hal S. Scott, Kristin Ricci & Aaron Sarfatti, SRISK as a Measure of Systemic Risk for Insurers: Oversimplified and Inappropriate (Harv. L. Sch., Sept. 12, 2016).
Categories:
Banking & Finance
Sub-Categories:
Finance
,
Economics
Type: Article
Abstract
The SRISK measure has been used to measure the relative systemic risk for financial institutions, ranking some insurers as vulnerable as banks to large capital shortfalls in stressed macroeconomic environments. This paper argues that the assumptions underpinning the SRISK measure are inappropriate for insurers and hence do not depict an accurate representation of insurer systemic risk.
Hal S. Scott, The Federal Reserve: The Weakest Lender of Last Resort Among its Peers, 18 Int’l Fin. 321 (2015).
Categories:
Banking & Finance
,
International, Foreign & Comparative Law
Sub-Categories:
Financial Markets & Institutions
,
Finance
,
International Monetary Systems
Type: Article
Abstract
This article for the first time compares the Federal Reserve's powers as lender of last resort (LLR') and its ability to fight contagion, with its three major peers, the Bank of England (the BOE'), the European Central Bank (the ECB') and the Bank of Japan (the BOJ'). It concludes that the Federal Reserve (the Fed') is currently the weakest of the four, largely due to a hostile political environment for LLR powers, which are equated with bailouts, and restrictions placed by the 2010 Dodd-Frank Act on the Fed's ability to loan to non-banks, whose role in the financial system is ever-increasing. This is a concern for the global as well as the US financial system, given the economic importance of the United States and the use of the dollar as a reserve currency.
Mark Ames, Til Schuermann & Hal S. Scott, Bank Capital For Operational Risk: A tale of fragility and instability, 8 J. Risk Mgmt. Fin. Inst. 227 (2015).
Categories:
Banking & Finance
Sub-Categories:
Banking
,
Financial Reform
,
Financial Markets & Institutions
,
Risk Regulation
Type: Article
Abstract
Operational risk is fundamentally different from all other risks taken on by a bank. It is embedded in every activity and product of an institution, and in contrast to the conventional financial risks (eg market, credit) is harder to measure and model, and not straightforwardly eliminated through simple adjustments like selling off a position. While it varies considerably, operational risk tends to represent about 10–30 per cent of the total risk pie, and has grown rapidly since the 2008–2009 crisis. It tends to be more fat-tailed than other risks, and the data are poorer. As a result, models are fragile — small changes in the data have dramatic impacts on modelled output — and thus required operational risk capital is unstable. Yet the US regulatory capital regime, the central focus of this paper, is surprisingly more rigidly model-focused for this risk than for any other. The authors are especially concerned with the absence of incentives to invest in and improve business control processes through the granting of regulatory capital relief, and make three, not mutually exclusive, policy suggestions. First, address model fragility directly through regulatory anchoring of key model parameters, yet allow each bank to scale capital to their data using robust methodologies. Secondly, relax the current tight linkage between statistical model output and required regulatory capital, incentivising prudent risk management through joint use of scenarios and control factors in addition to data-based statistical models in setting regulatory capital. Thirdly, provide allowance for real risk transfer through an insurance credit to capital, encouraging more effective risk sharing through future product innovation. Until the understanding of operational risks increases, required regulatory capital should be based on methodologies that are simpler, more standardised, more stable and more robust.
Hal S. Scott, The Importance of the Retail Payment System (MasterCard, Dec. 16, 2014).
Categories:
Banking & Finance
Sub-Categories:
Economics
,
Finance
Type: Article
Abstract
This article explores the importance of an efficient retail payment system and develops an integrated framework for evaluation of the retail payment system by policy makers. It examines the costs and benefits of the various types of retail payment system, focusing on the seven desirable benefits of the retail payment system: (1) finality and reversibility; (2) universality (ability to use at point of sale and remotely); (3) recordkeeping; (4) liquidity (maximizing interest earning assets); (5) security and safety; (6) financial inclusion and access; and (7) fungibility and ease of use (seven benefits). The article discusses the Coase Theorem, a proposition from transaction cost economics that provides a useful tool for analyzing transaction efficiency. Increased costs are not bad per se since parties are often willing to incur higher costs to achieve their desired results, e.g. higher costs for a more secure form of payment. Indeed, higher costs may often generate higher value to both parties to a transaction. What one wants to reduce are “friction” costs, costs that neither party wants to pay to achieve a desired result, e.g. higher costs produced by lack of information. While each retail payment system provides certain advantages, e.g. cash for small transactions, overall the analysis suggests that debit and credit cards represent the most desirable payment system for achieving the seven benefits set forth above. This is supported by statistics that indicate that retail payments have increasingly moved toward card payments.
Hal S. Scott & Leslie N. Silverman, Stockholder Adoption of Mandatory Individual Arbitration for Stockholder Disputes, 36 Harv. J.L. & Pub. Pol'y 1188 (2013).
Categories:
Corporate Law & Securities
,
Civil Practice & Procedure
,
Disciplinary Perspectives & Law
Sub-Categories:
Shareholders
,
Corporate Law
,
Arbitration
,
Dispute Resolution
,
Empirical Legal Studies
Type: Article
Abstract
Federal Rule of Civil Procedure 23 and the Private Securities Litigation Reform Act of 1995 (PSLRA)1 together govern securities class actions. These regimes provide that a class representative may bring a claim against a corporation on behalf of all investors who owned a security at a time when there was an alleged misstatement or failure to disclose a material fact that caused loss. By default all potential members of a class—all investors who owned the security during the relevant time (before the misstatement or omission was corrected)—are included in the class unless they take the affirmative step of opting out. Inertia, therefore, works to expand the class.
Hal S. Scott, Interconnectedness and Contagion (Comm. on Capital Mkt. Reg., Nov. 20, 2012).
Categories:
Banking & Finance
,
Corporate Law & Securities
Sub-Categories:
Financial Markets & Institutions
,
Finance
,
Financial Reform
,
Securities Law & Regulation
,
Corporate Law
Type: Other
Abstract
This study engages in a detailed analysis of interconnectedness (i.e., the linkage between financial institutions) in the context of the failure of Lehman Brothers in October 2008 and concludes that interconnectedness was not a major cause of the recent financial crisis. The study continues with a discussion of financial contagion (i.e., run-like behavior that spreads from the perceived failure of a financial institution to other financial institutions) and an analysis of possible solutions to contagion. The study highlights that a distinguishing feature of contagion is its ability to spread indiscriminately among firms in the financial sector and notes that contagious runs can occur even if there are no direct linkages to the original institution (i.e., even in the absence of interconnectedness). The study comes to the conclusion that contagion was the primary cause of the financial crisis and that short-term funding in particular is the primary source of systemic instability. In the context of these conclusions, the study engages in a comprehensive and detailed analysis of the possible solutions to financial contagion. The solutions include: (i) capital requirements, (ii) liquidity requirements, (iii) resolution procedures, (iv) money market mutual fund reform, (v) lender of last resort, (vi) liability insurance and guarantees, and (vii) public bailouts. Each potential solution is discussed in detail with an evaluation of its effectiveness in addressing financial contagion.
Hal S. Scott, The Next Step in Global Financial Regulation: Global Regulation of Interconnectedness, 1 Global Pol'y 332 (2010)(response to Howard Davies, Global Financial Regulation after the Credit Crisis, 1 Global Pol'y 185 (2010)).
Categories:
International, Foreign & Comparative Law
,
Banking & Finance
Sub-Categories:
Financial Markets & Institutions
,
Finance
,
International Monetary Systems
Type: Article
Hal S. Scott, Reducing Systemic Risk Through the Reform of Capital Regulation, 13 J. Int. Econ. L. 763 (2010).
Categories:
Banking & Finance
Sub-Categories:
Financial Markets & Institutions
,
Financial Reform
,
Finance
,
Risk Regulation
Type: Article
Abstract
Capital requirements are a key element in containing systemic risk. This article argues that the market needs to play a more significant role in determining these requirements. The Basel process has a bad track record and there are inherent methodological and political difficulties in a group of regulators, particularly an international one, determining the appropriate amount of capital for a given risk. An added role for the market depends, however, on fuller disclosure by banks of their risks and minimization of the moral hazard created by bailouts, so creditors and counterparties bear a fuller measure of the risk.
Hal S. Scott, The Reduction of Systemic Risk in the U.S. Financial System, 33 Harv. J.L. & Pub. Pol'y 672 (2010).
Categories:
Banking & Finance
Sub-Categories:
Financial Markets & Institutions
,
Financial Reform
,
Finance
,
Risk Regulation
Type: Article
Abstract
The central problem for financial regulation is reducing systemic risk. Systemic risk is the risk that the failure of one significant institution can cause or significantly contribute to the failure of other significant institutions. This paper addresses the five most important policies for dealing with systemic risk: the imposition of capital requirements, the use of clearinghouses and exchanges for over-the-counter derivatives, the resolution of insolvent institutions, emergency lending by the Federal Reserve and the structure of the regulatory system. The author also argues that the Volcker Rules and related limitations on bank size would not reduce systemic risk.
Hal S. Scott, The Global Financial Crisis (Foundation Press 2009).
Categories:
Banking & Finance
,
International, Foreign & Comparative Law
Sub-Categories:
Financial Markets & Institutions
,
Financial Reform
,
International Monetary Systems
Type: Book
Abstract
This timely book is an up-to-date view of the nature of the global financial crisis and the various statutory, regulatory and policy responses to it. As such, it focuses on recent developments and underlying policy issues. It looks closely at financial and economic aspects of the recent credit crisis as well as the purely legal dimensions. By its nature, it is cross-disciplinary. This book is a valuable tool for any law student looking to understand the legal and regulatory factors implicated in the global credit crisis.
Hal S. Scott, How Would a New Bankruptcy Regime Help? (Brookings Papers on Econ. Activity, no. 1, 2002).
Categories:
International, Foreign & Comparative Law
,
Corporate Law & Securities
Sub-Categories:
Corporate Bankruptcy & Reorganization
,
Corporate Law
,
International Monetary Systems
Type: Article
Hal S. Scott, The Internationalization of Primary Public Securities Markets, 63 Law & Contemp. Probs. 71 (2000).
Categories:
International, Foreign & Comparative Law
,
Corporate Law & Securities
Sub-Categories:
Securities Law & Regulation
,
International Monetary Systems
Type: Article
Hal S. Scott, When The Euro Falls Apart, 1 Int. Fin. 207 (1998).
Categories:
Banking & Finance
,
International, Foreign & Comparative Law
,
Corporate Law & Securities
Sub-Categories:
Finance
,
Financial Markets & Institutions
,
Financial Reform
,
Corporate Law
,
International Monetary Systems
,
European Law
Type: Article
David C. Cole, Hal. S. Scott & Phiilip A. Wellons, Asian Money Markets (Oxford Univ. Press 1995).
Categories:
International, Foreign & Comparative Law
,
Banking & Finance
Sub-Categories:
Financial Markets & Institutions
,
International Monetary Systems
,
East Asian Legal Studies
Type: Book
Abstract
The countries of East and Southeast Asia have the world's most dynamic money markets. Essential to the Asian economy, their performance plays a crucial role in the successful development of other financial markets, such as those for business and consumer loans. This original study of the effect of government policy on the performance of money markets in the economies of this region (Hong Kong, Indonesia, Japan, Malaysia, the Philippines, Singapore, and South Korea) is the only comprehensive book addressing this topic available today. Individual chapters were written by experts in the field, and were guided by a common research methodology. This book will be of great value to Pacific Basin specialists, bankers, academics, and public policy planners in finance.
Hal S. Scott & Sydney J. Key, International Trade in Banking Services: A Conceptual Framework (Group of Thirty, Occasional Papers No. 35, 1991).
Categories:
Banking & Finance
,
International, Foreign & Comparative Law
Sub-Categories:
Banking
,
International Trade
,
Trade Regulation
Type: Article
Hal S. Scott, When The Euro Falls Apart: A Sequel (Harv. L. Sch. Pub. L. & Legal Theory Working Paper Series, Paper No. 12-16, 2012).
Categories:
Banking & Finance
,
International, Foreign & Comparative Law
Sub-Categories:
Finance
,
Financial Markets & Institutions
,
Financial Reform
,
International Monetary Systems
Type: Article
Abstract
This paper examines the case for Member States withdrawing from the euro area (using Greece and Italy as examples), focusing on the economic benefits to exit and the operational and legal obstacles to doing so. It concludes that withdrawal is preferable to solely restructuring debt that remains denominated in euros. While both techniques can decrease debt burden, only withdrawal and establishment of a new currency allows for devaluation that can restore the competitiveness of economies. While some commentators fear the losses that devaluation might impose, particularly on European banks, the paper proposes using the European Union’s existing Exchange Rate Mechanism (ERM) to ensure that losses could be held to levels comparable to the debt haircut achieved through restructuring. This plan should be adopted now whether or not Greece uses it so it is in place for possible future withdrawals.

Academic Appointment and Employment History

Bar Admissions

Board Memberships

Clerkships

Education History