Faculty Bibliography

This chapter provides an updated examination of public enforcement efficacy in the context of securities regulation. We summarize the literature exploring the relationship between enforcement and other measures of robust capital markets; between enforcement and capital flows, valuations, and cross-listing decisions; and between enforcement and the success of regulatory reform efforts. We also review recent efforts to employ more sophisticated econometric methods to tease out the direction of causality between enforcement intensity and robust capital markets. We conclude by surveying a new frontier for the public enforcement of securities laws: cryptocurrencies. Overall, existing scholarship confirms that greater levels of public enforcement are associated with key measures of robust capital markets.

Scholars and policy makers have long debated whether securities firms should be allowed to bundle the cost of execution services with the cost of research. Investor advocates condemn the practice whereas industry representatives defend it. In 2018, as part of the Markets in Financial Instruments Directive II (MiFID II) legislative regime, the EU forced the unbundling of commission charges, diverging from US legal standards which still allow ‘soft dollar’ payments for research. The EU’s unbundling regime has challenged global financial services firms, which must now comply with conflicting rules across national boundaries. For more than five years, the US Securities and Exchange Commission provided temporary no-action relief to facilitate compliance with MiFID II, but that relief expired in July 2023, presenting an opportunity to reconsider the impact of MiFID II’s unbundling regime and its implications for US regulators and investors. While this article takes a critical view of soft dollar practices, the story of MiFID II presents contested issues of policy analysis as the agency costs inherent in bundled commissions could be offset by the public benefits of additional research. Unbundling also offers a noteworthy example of an innovation in capital markets regulation flowing from Europe to the United States rather than the other way around.

We propose that the U.S. Treasury Department create “Treasury Accounts” as a means of improving access to financial services for many Americans. These would be digital accounts that would facilitate distribution of federal benefits and provide low cost, no-frills payment services. Treasury could create these accounts under existing statutory authority. In addition, Treasury’s substantial experience, dating back several decades, in devising benefit distribution and payment service programs for individuals can serve as the foundation for our proposal. Treasury Accounts could make it easier for those who are underserved by today’s banking system to both open and sustain an account. We propose a limit on account size and rollovers to private accounts to minimize disintermediation of bank deposits. As the public debate heats up over whether to create a U.S. central bank digital currency (CBDC), we explain why Treasury is better suited, at least in the short term, to provide retail accounts than the Federal Reserve, and why this proposal would be a faster, easier way to achieve some of the primary objectives of a CBDC.

In this paper, Massad and Jackson propose that the SEC and the Commodity Futures Trading Commission (CFTC) jointly create and oversee a new self-regulatory organization, similar to the Financial Industry Regulatory Authority (FINRA) or the National Future Association (NFA).

While stablecoins could produce important consumer benefits and valuable competition in the payments space, current regulation of stablecoin issuers is woefully inadequate. Legislative solutions are possible but may not be forthcoming any time soon. In the meantime, markets continue to evolve and other regulatory systems may move ahead of the United States in payments innovation.We propose a federal framework for the issuance of stablecoins within the existing regulatory framework for insured depository institutions, a structure that would not require any new legislation. In our view, a well-designed regulatory platform would put the “stable” in stablecoins—protecting consumers from the risks of illiquidity and potential losses in the event of a stablecoin issuer’s default, and protecting the financial system from instability as the stablecoin market grows in size and importance. The market value of all stablecoins, which was around $5 billion at the beginning of 2020, exceeded $140 billion at the beginning of August 2022. The framework described in this white paper is consistent with the recommendations of the President’s Working Group on Financial Markets in its November 2021Report on Stablecoins.Under current law, the Comptroller of the Currency could authorize a national trust bank charter, organized as an operating subsidiary of an insured depository institution, to create stablecoins through the use of a dedicated trust vehicle. Under our proposal, the Comptroller would adopt standards limiting the investment of stablecoin reserves to high quality liquid assets and address redemptions and operational resilience, among other matters. Our approach could promote increased competition in payments services and potentially safeguard the role of the dollar in international finance. While our framework would not be mandatory, our approach would provide substantial benefits to stablecoin sponsors, thus increasing the likelihood that they would opt into the framework.Coordination across government agencies would be necessary to implement our recommendations effectively. The federal banking agencies—the Federal Reserve Board, the Comptroller, and the Federal Deposit Insurance Corporation —would have to support this framework. The FDIC would not insure stablecoin holdings under our proposal, but could be responsible for resolving a stablecoin national trust bank if one ran into trouble. Buy-in from both the Securities and Exchange Commission and the Commodity Futures Trading Commission would be highly desirable. We recommend that a working group of the Financial Stability Oversight Council quarterback this coordination. Our proposal is self-consciously incremental and cautious, imposing stringent and overlapping safeguards and preserving the separation of banking and commerce. If successful, our proposal might later be liberalized in a variety of ways. The experience gained in developing our approach could also be useful in drafting more comprehensive legislation.Implementing our proposal would, no doubt, be a substantial administrative lift, but it would represent a viable and realistic way forward.

For decades, the bundling of research services into commissions paid for the execution of securities trades has been the focus of policy discussion and academic debate. The practice whereby asset management firms use investor funds to cover research costs, known as “soft dollar” payments in the United States, resembles a form of kickback or self-dealing. The payments allow asset managers to use investor funds to subsidize the cost of their own research efforts even though those managers charge investors a separate and explicit management fee for advisory services. Why do soft dollars exist? Over the years, defenders of the practice have argued that soft dollars mitigate principal-agent problems between the investment manager and the broker, improve fund performance, and provide a public good in terms of the increased production of research on public companies. This Article evaluates these theoretical law-and-economics arguments through the lens of empirical academic research done in the past as well as an emerging new body of empirical studies exploring the impact of MiFID II, an E.U. Directive that severely restricted the use of soft dollar payments in European capital markets as of January 2018. The weight of empirical evidence suggests that the arguments in favor of soft dollars are not robust. MiFID II’s unbundling of commissions appears to have, on balance, improved European market efficiency by eliminating redundancy and producing information that is of greater value to investors.

The regulation of mutual funds in the United States arguably contains the world’s most extensive system of fiduciary protection, buttressed by elaborate liability rules and a host of procedural protections and mandatory disclosure requirements designed to facilitate investor protection and choice. The intensity of this regulatory structure is a subject of perennial debate, as public officials and policy analysts attempt to balance the cost of compliance and oversight against benefits to investors. Over time, government officials have made numerous supervisory accommodations to ameliorate the system’s costs and facilitate industry innovations. But, the burdens of this enhanced system of fiduciary protections for mutual funds remain significant and have encouraged industry participants to evade these legal requirements in a number of ways, such as the creation of alternative vehicles for collective investments (including insurance products and managed accounts of various sorts) and the imbedding of regulated mutual funds into other legal structures that escape the full application of the enhanced systemic of fiduciary protections for mutual funds. Technological innovations, such as robo-advising, are likely to accelerate this trend. In this chapter, I explore this important illustration of regulatory arbitrage and suggest areas where aspects of mutual fund regulation might appropriately be extended to functionally similar investment vehicles.

The coronavirus pandemic has produced a public health debacle of the first-order. But, the virus has also propagated the kind of exogenous shock that can precipitate—and to a certain degree has precipitated—a systemic event for our financial system. This still unfolding systemic shock comes a little more than a decade after the last financial crisis. In the intervening years, much as been written about the global financial crisis of 2008 and its systemic dimensions. Considerable scholarly attention has focused on first devising and then critiquing the macroprudential reforms that ensued, both in the Dodd-Frank Act and the many regulations and policy guidelines that implemented its provisions. In this essay, we consider the coronavirus pandemic and its implications for the financial system through the lens of the frameworks we had developed for the analysis of systemic financial risks in the aftermath of the last financial crisis. While today’s pandemic differs in many critical respects from the events of 2008, systemic events in the financial sector have a common structure relevant to both crises. Reflecting back on responses to the last financial crisis also affords us an opportunity both to understand how financial regulators are currently responding to the coronavirus pandemic and also to speculate how the pandemic might lead to further reforms of financial regulation and other areas of public policy in the years ahead.

Following the 2020 presidential election, health care reform discussions have centered on two competing proposals: Medicare for All and an individual public option (“Medicare for all who want it”). Interestingly, these two proposals take starkly different approaches to employer-provided health coverage, long the bedrock of the U.S. health care system and the stumbling block to many prior reform efforts. Medicare for All abolishes employer-provided coverage, while an individual public option leaves it untouched. This Article proposes a novel solution that finds a middle ground between these two extremes: an employer public option. In contrast to the more familiar public option proposal, which would offer government sponsored health insurance directly to individuals, our plan creates a public option for employers, who can select a public plan—based on Medicare and altered to meet the needs of working populations—instead of a private health plan for their employees. Employer-based private health coverage is in decline and increasingly leaves workers vulnerable. Our proposal offers a gradual way to loosen reliance on this system. We review the policy, regulatory, fiscal, and business arguments in favor of this form of public option, which we argue is less disruptive than Medicare for All but more impactful than an individual public option. Because employer take up would be gradual and voluntary, our plan has lower fiscal costs and should face less resistance from employees and vested interests than Medicare for All. Over time, if the plan meets employers’ and employees’ needs, more people would be covered by a public option, moving away from over-reliance on private employer plans and toward something akin to Medicare-for-Many in a less politically, legally, and fiscally fraught way.

For nearly half a century, the bundling of research services into commissions that paid for the execution of securities trades has been the focus of both policy discussion and academic debate. The practice whereby asset management firms make use of investor funds to cover the costs of research, known as “soft dollar” payments in the United States, resembles a form of kickback or self-dealing. The payments allow asset managers to use investor funds to subsidize the cost of the asset managers’ own research efforts even though those managers charge investors a separate and explicit management fee for advisory services. So why does this form of kickback continue to exist? Over the years, defenders of the practice have argued that soft dollars mitigate principal-agent problems between the investment manager and the broker, improve fund performance, and provide a public good in terms of the increased production of research on public companies. This article evaluates these theoretical arguments through the lens of academic work done in the past as well as an emerging new body of empirical studies exploring the impact of MiFID II, a European Union Directive that severely restricted the use of soft dollar payments in European capital markets as of January 2018. The weight of empirical evidence, including recent evidence coming out of Europe, suggests that the theoretical arguments in favor of soft dollars are not robust. In particular, MiFID II’s unbundling of commissions appears to have, on balance, improved European market efficiency by eliminating redundancy and producing information that is of greater value to investors.

We are living through extraordinary times as the United States has struggled to deal with the global COVID-19 pandemic, and as of the writing of this paper, we remain in the midst of the crisis. We still do not know what the full economic and financial consequences of the pandemic will be, but they are likely to persist for an extended period, as many people are unlikely to return to normal work or consumption patterns soon, and household and business defaults are likely to increase and negatively affect the financial sector. This paper, written to assist faculty in teaching about the pandemic, focuses on key actions taken by the financial regulators in response to the crisis so far, giving a detailed summary of the actions taken by the Federal Reserve, the Treasury Department, and Congress. We discuss the Federal Reserve’s monetary policy actions, emergency lending facilities, and supervisory forbearance by the federal banking agencies. We also provide a summary of financial provisions of the CARES Act, including an analysis of the Paycheck Protection Program. We explore a number of central themes already emerging, including the blurry line between monetary policy and fiscal policy. We also highlight the fact that unlike the Financial Crisis of 2008, today’s economic crisis is caused by the failure to take sufficient public health actions to contain a global pandemic, not poor policy and risk choices in the financial markets; the fact that the crisis is caused by a public health failure poses unique problems for economic and financial policymakers in crafting responses.

This chapter explores recent Fintech innovations through the lens of Ronald Coase’s classic article: The Nature of the Firm. Applying a transaction cost analysis, the chapter argues that developments in computer technology, data processing, and information networks are reshaping the manner in which financial services are produced, unsettling the boundaries separating regulated firms from outside vendors and open market transactions. These changes raise challenging questions as to the appropriate contours of regulatory perimeters as well as the structure of regulation and supervision in the many area of financial regulation. Fintech innovations also have the potential to be harnessed to serve public purposes, including expanding access to financial services and improving supervisory practices. At a minimum, Fintech innovations and most especially machine learning and artificial intelligence complicate the application of legal doctrines based on human intentionality. More broadly, the scale and scope of these technological developments may lead to a fundamentally rethinking of the appropriate goals of regulatory policy for financial firms and the economy more broadly, particularly with respect to privacy and the accumulation of personal information in private and public hands.

The title of this essay is an homage to Ronald Coase’s classic work, The Nature of the Firm. For years, Professor Coase’s article has inspired corporate theorists and earned a place in the pantheon of corporate law scholarship. In this essay, I return to The Nature of the Firm to explore the fintech revolution and the supervisory challenges that aspects of this revolution have posed for regulatory authorities. Several of the examples I discuss concern the distinction between activities located within a firm and those arranged through market transactions often supplied through new and specialized fintech entities. Two others explore the changing nature of what it means to exercise managerial discretion in an era of machine learning and artificial intelligence.

The coronavirus has produced a public health debacle of the first-order. But the virus is also propagating the kind of exogenous shock that can precipitate – and to a considerable degree is already precipitating – a systemic event for our financial system. This currently unfolding systemic shock comes a little more than a decade after the last financial crisis. In the intervening years, much as been written about the global financial crisis of 2008 and its systemic dimensions. Additional scholarly attention has focused on first devising and then critiquing the macroprudential reforms that ensued, both in the Dodd-Frank Act and the many regulations and policy guidelines that implemented its provisions. In this essay, we consider the coronavirus pandemic and its implications for the financial system through the lens of the frameworks we had developed for the analysis of systemic financial risks in the aftermath of the last financial crisis. We compare and contrast the two crises in terms of systemic financial risks and then explore two dimensions on which financial regulatory authorities might profitably engage with public health officials. As we are writing this essay, the pandemic’s ultimate scope and consequences, financial and otherwise, are unknown and unknowable; our analysis, therefore, is necessarily provisional and tentative. We hope, however, it may be of interest and potential use to the academic community and policymakers.

Over the past decade, cost-benefit analysis in the field of financial regulation (“financial CBA”) has emerged as a topic of intense public interest. In reviewing rulemakings under the Administrative Procedure Act, courts have demanded greater rigor in the financial CBA that regulators provide in support of new regulations. Industry experts and other analysts have repeatedly questioned the adequacy of agency assessments of costs and benefits. And legal academics have engaged in a robust dialogue over the merits of financial CBA and the value of alternative institutional structures for overseeing financial CBA. This Article adds to the expanding literature on financial CBA by offering a detailed study of how regulatory agencies actually undertake benefit analysis in promulgating new regulations involving matters of consumer finance and other analogous areas of consumer protection. After a brief literature review, the Article proposes a taxonomy for categorizing benefit analysis in the area of consumer financial regulation. This taxonomy reflects traditional market failures, cognitive limitations of consumers, as well as several other beneficial outcomes commonly associated with regulations designed to protect consumers. Taking the taxonomy as a framework, the Article then reports on a detailed survey of seventy-two consumer protection regulations adopted in recent years, and presents an overview of the range and quality of benefit analysis that government officials actually undertook in the surveyed regulations. The Article next provides a more detailed discussion of twenty “exemplars” of benefit analysis drawn from regulations in the sample and focusing on the strengths and weaknesses of what might be considered state-of-the-art benefit analysis in consumer protection regulation in the years immediately following the enactment of the Dodd-Frank Act. The Article concludes with a discussion of potential lines of academic research and institutional reform that might assist financial regulators in conducting more complete benefit analysis for consumer protection regulation in the future.

Throughout the book, the authors note the cross-border implications of U.S. rules, and compare, where appropriate, the U.S. financial regulatory framework and policy choices to those in other places around the globe, especially the European ...

This chapter examines the impact of private and public enforcement of securities regulation on the development of capital markets. After a review of the literature, it considers empirical findings related to private and public enforcement as measured by formal indices and resources, with particular emphasis on the link between enforcement intensity and technical measures of financial market performance. It then analyses the impact of cross-border flows of capital, valuation effects, and cross-listing decisions by corporate issuers before turning to a discussion of whether countries that dedicate more resources to regulatory reform behave differently in some areas of market activities. It also explores the enforcement of banking regulation and its relationship to financial stability and concludes by focusing on direct and indirect, resource-based evidence on the efficacy of the US Securities and Exchange Commission’s enforcement actions.

This chapter explores the application of fiduciary duties to regulated financial firms and financial services. At first blush, the need for such a chapter might strike some as surprising in that fiduciary duties and systems of financial regulation can be conceptualized as governing distinctive and non-overlapping spheres: Fiduciary duties police private activity through open-ended, judicially defined standards imposed on an ex post basis, whereas financial regulations set largely mandatory, ex ante obligations for regulated entities under supervisory systems established in legislation and implemented through expert administrative agencies. Yet, as we document in this chapter, fiduciary duties often do overlap with systems of financial regulation. In many regulatory contexts, fiduciary duties arise as a complement to, or sometimes substitute for, other mechanisms of financial regulation. Moreover, the interactions between fiduciary duties and systems of financial regulation generate a host of recurring and challenging interpretative issues. Our motivation in writing this chapter is to explore the reasons why fiduciary duties arise so frequently in the field of financial regulation, and then to provide a structured account of how the principles of fiduciary duties interact with the more rule-based legal requirements that characterize financial regulation. As grist for this undertaking we focus on a set of roughly two dozen judicial decisions and administrative rulings to illustrate our claims.

One of the most elegant legal innovations to emerge from the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 is the FDIC’s single-point-of-entry (SPOE) initiative, whereby regulatory authorities will be in a position to resolve the failure of large financial conglomerates (corporate groups with regulated financial entities as subsidiaries) by seizing a top-tier holding company, downstreaming holding-company resources to distressed subsidiaries, wiping out holding-company shareholders while simultaneously imposing additional losses on holding-company creditors, and allowing the government to resolve the entire group without disrupting the business operations of operating subsidiaries (even those operating overseas) or risking systemic consequences for the broader economy. Although there is much to admire in the creativity underlying SPOE, the approach’s design also raises a host of novel and challenging questions of implementation. This chapter explores a number of these questions and elaborates upon the following points. First, in contrast to traditional approaches to resolving financial conglomerates, SPOE is premised on the continued support of all material operating subsidiaries, thereby potentially extending the scope of government support and thus posing the possibility of mission creep and expanded moral hazard. Second, SPOE contemplates the automatic downstreaming of resources to operating subsidiaries in distress, but effecting that support is likely to be more difficult than commonly understood. If too much support is positioned in advance, there may be inadequate reserves at the top level to support a single subsidiary that gets into an unexpectedly large amount of trouble. Alternatively, if too many reserves are retained at the holding-company level, commitments of subsidiary support may not be credible (especially to foreign authorities) and it may become difficult legally and practically to deploy those resources in times of distress. SPOE is most easy to envision operating in conjunction with the FDIC’s expanded authority under its Orderly Liquidation Authority (OLA) established under Title II of the Dodd-Frank Act. However, the act’s preferred regime for resolving failed financial conglomerates is the U.S. Bankruptcy Code (where Lehman was resolved) and not OLA. Several complexities could arise were a bankruptcy court today called upon to implement an SPOE resolution plan. While many legal experts are working on legislative proposals to amend the Bankruptcy Code to facilitate SPOE resolutions, there are a number of legal levers that federal authorities could deploy under current law to increase the likelihood that the SPOE strategy could be effected through traditional bankruptcy procedures. The task would be challenging and would require considerable advanced planning. But there are substantial benefits to be had from taking steps now to increase the likelihood that the bankruptcy option represents a viable and credible alternative for effecting SPOE transactions without resort to OLA and Title II of the Dodd-Frank Act.

This law school casebook was developed by a team of professors at Harvard Law School to introduce students with little or no quantitative background to the basic analytical techniques that attorneys need to master to represent their clients effectively. This casebook presents clear explanations of decision analysis, games and information, contracting, accounting, finance, microeconomics, economic analysis of the law, fundamentals of statistics, and multiple regression analysis. References and examples have been thoroughly updated for this 3rd edition, and exposition of a number of key topics has been reworked to reflect insights gained from teaching these topics using the 1st edition to many hundreds of Harvard Law students over the past decade.

Financial Regulation: Law and Policy is a new textbook that aims to teach students about today's financial sector with a modular, accessible, balanced, practical, and ready-to-use approach. Our goal is to give students the tools to understand how American history and political economy have shaped the regulatory perimeter, how different policy choices have been made at different times across different parts of the financial sector, and how these choices matter a great deal in shaping not only financial stability, but also how the financial sector supports the economy and society. The textbook includes chapters on Insured Depository Institutions, Insurance, Securities Firms and Capital Markets, Consumer Protection and the CFPB, Financial Conglomerates, Payment Systems, Corporate Governance, Lender of Last Resort and Resolution, Mutual Funds and Other Investment Vehicles, Derivatives and Rate Markets, and Shadow Banking. The textbook comes with a teacher's manual that explores key themes, suggests a range of teaching approaches, answers questions posed in the textbook, and includes class slides for each chapter. This download contains the summary table of contents and Chapter 1.1: Finance Today.

Even though most American retirees benefit from Medicare coverage, a mounting body of research predicts that many will face large and increasing out-of-pocket expenditures for healthcare costs in retirement and that many already struggle to finance these costs. It is unclear, however, whether the general population understands the likely magnitude of these out-of-pocket expenditures well enough to plan for them effectively. This study is the first comprehensive examination of Americans’ expectations regarding their out-of-pocket spending on healthcare in retirement. We surveyed over 1700 near retirees and retirees to assess their expectations regarding their own spending and then compared their responses to experts’ estimates. Our main findings are twofold. First, overall expectations of out-of-pocket spending are mixed. While a significant proportion of respondents estimated out-of-pocket costs in retirement at or above expert estimates of what the typical retiree will spend, a disproportionate number estimated their future spending substantially below what experts view as likely. Estimates by members of some demographic subgroups, including women and younger respondents, deviated relatively further from the experts’ estimates. Second, respondents consistently misjudged spending uncertainty. In particular, respondents significantly underestimated how much individual health experience and changes in government policy can affect individual out-of-pocket spending. We discuss possible policy responses, including efforts to improve financial planning and ways to reduce unanticipated financial risk through reform of health insurance regulation.

In 2011, the federal government came perilously close to reaching the statutory limit on public debt. For the first seven months of the year, the Obama Administration and congressional Republican leaders engaged in an elaborate sequence of press conferences and closed door negotiations. Straightforward measures to increase the public debt ceiling were caught up in partisan politics and larger questions of deficit reduction and fiscal policy. Only on the eve of crisis – on August 2, 2011 – when the federal government was within hours of being unable to pay its bills in a timely manner, did a compromise emerge in the form of the Budget Control Act of 2011, which established a three step process for raising the debt ceiling by at least $2.1 trillion. For the first time in a generation, policy analysts and budget scholars confronted the question of what would happen if political processes had in fact broken down and the debt ceiling had been reached. My goal in this essay is to explore that question. I begin by distinguishing several distinct phases of debt ceiling crises and then explore the dilemma that the Treasury Department would have faced in August 2011 had a compromise not been reached. At that point, the crisis would have transitioned from what I label a Phase One Debt Crisis, when the Executive manipulates federal accounts in what has become a stylized dance of creating additional borrowing capacity while political compromises are forged, into what I term a Phase Two Debt Crisis, when the debt ceiling is reached, no additional accounting shenanigans are available, and the Executive must determine which of the government’s bills to pay and which bills to defer. As it turns out, the legal framework of a Phase Two Debt Crisis is not well defined. Though some scholars have suggested that the Public Debt Clause of the Fourteenth Amendment to the U.S. Constitution offers guidance under these circumstances, the constitutional constraints in a Phase Two Debt Crisis are far from clear. Conceivably, statutory provisions governing federal budget procedures may offer some guidance in defining how the Executive should proceed when federal commitments exceed cash on hand and additional borrowing is not authorized. But even these statutory guidelines are only useful by analogy, and ultimately the Executive retains considerable discretion as to the order in which federal obligations are liquidated during a Phase Two Debt Crisis. The essay concludes with a series of suggestions as to how future Treasury Departments might proceed in the not entirely unimaginable possibility that the United States hits the public debt ceiling (perhaps in the third quarter of 2017) and confronts a genuine Phase Two Debt Crisis for the first time.

Health care costs are an increasingly significant category of expenditures for retirees. Studies have demonstrated that many retirees face a shortfall with respect to these out-of-pocket health care expenses, but there has been little investigation into why. Are retirees unable to save for or otherwise finance such expenditures or are they unaware of the magnitude of likely future expenditures? This article explores this question by examining what individuals approaching and in retirement expect with regard to their own future out-of-pocket health care expenditures in retirement. By conducting a survey of 2000 individuals ages 40 to 80 through Rand Corporation’s American Life Panel, this study ascertains respondents’ expectations regarding insurance coverage and health care expenditures in retirement and compares their answers to policy experts’ estimates. While, respondents’ answers neared experts’ estimates on some dimensions, such as median monthly expenditures, there was a significant discrepancy on others, including in lump-sum estimations and expectations regarding long-term care costs. Furthermore, responses signaled a greater gap between expectations and likely expenditures for women and younger cohorts. Finally, respondents failed to differentiate between sources of uncertainty in spending due to high individual costs, policy changes, or health care inflation, and underestimated the possible effects of these sources of uncertainty on individual expenditures. These results suggest and the article discusses important implications for financial education, health care policy, and further research.

Almost five years into the foreclosure crisis, policymakers, the mortgage industry, consumers and taxpayers all express disappointment over the slow pace of modifications, refinancings, and other resolutions of borrowers’ distress short of foreclosure auctions. Many analysts point to the prevalence of second liens on the properties as a significant impediment to efficient resolutions of borrowers’ distress and therefore to the stabilization of the housing market. In addition, many observers argue that a significant number of second liens are at serious risk of default, and therefore may imperil the financial solvency of the financial institutions holding the liens. To better understand whether and how second liens might prevent efficient resolutions of borrower distress and to assess how second lien holders could be encouraged to cooperate with efficient resolutions without undermining the financial interests of the banks, we reviewed existing data and research, as well as debates among both academics and industry experts about the role second liens might be playing in slowing the recovery of the housing market. We then convened a small group of experts from across the country on April 10th, 2012, gathering around one table servicers, investors, title insurers, consultants, bank regulators, government officials, mortgage counselors, economists, lawyers, accountants and academics to explore the full range of issues that second liens pose to efforts to stabilize the housing market. This article reports the results of our research and the roundtable discussion. It first explores what we know about the prevalence and delinquency rates of different types of second liens, the extent to which banks are exposed to losses on the liens, and the extent to which the banks already have accounted for those expected losses. It then reviews the various reasons that second liens have interfered with the efficient resolution of distressed mortgages, and documents advances that recently have been made in addressing those problems. Finally, the article examines the most promising proposals for reducing the transaction costs and frictions that are behind many of the current problems second liens are posing, as well as proposals to prevent similar problems from arising in the future. We focus our analysis of solutions on programs to remove barriers to greater coordination between first and second lien holders, rather than on the incentive approaches that have already been attempted.

The recent financial crisis has led many to question how well businesses deliver services and how well regulatory institutions address problems in consumer financial markets. This paper discusses consumer financial regulation, emphasizing the full range of arguments for regulation that derive from market failure and from limited consumer rationality in financial decision making. We present three case studies—of mortgage markets, payday lending, and financing retirement consumption—to illustrate the need for, and limits of, regulation. We argue that if regulation is to be beneficial, it must be tailored to specific problems and must be accompanied by research to measure the effectiveness of regulatory interventions.

The authors offer advice to the head of the new Consumer Financial Protection Bureau. They review the principles that provide justification for regulation and offer guidance on how to approach regulation and how to manage the new bureau. They advocate for a principles-based, data-driven approach to regulation.

This law school casebook was developed by a team of professors at Harvard Law School to introduce students with little or no quantitative background to the basic analytical techniques that attorneys need to master to represent their clients effectively. This casebook presents clear explanations of decision analysis, games and information, contracting, accounting, finance, microeconomics, economic analysis of the law, fundamentals of statistics, and multiple regression analysis. References and examples have been thoroughly updated for this 2d edition, and exposition of a number of key topics has been reworked to reflect insights gained from teaching these topics using the 1st edition to many hundreds of Harvard Law students over the past decade.

Interest group pluralism presumes that public policy outcomes are determined principally through a contest for influence among organized pressure groups. Most interest groups, however, do not represent themselves in this process. Rather, they rely on professional lobbyists for representation, information, and advice. These lobbyists, however, may have their own interests, which may not align perfectly with those of their clients. This Essay outlines this principal agent problem and suggests its possible implications for policy outcomes. In particular, this piece hypothesizes that the lobbyist-client agency problem may create four notable consequences: (1) it may bias policy in favor of small homogenous groups; (2) it may exacerbate status quo bias; (3) it may promote expansive delegations of power and rulemaking to administrative agencies; and (4) it may impede systematic reforms to the policymaking process.

The recent financial crisis has led many to question how well businesses deliver consumer financial services and how well regulatory institutions address problems in consumer financial markets. In response, the Obama administration proposed a new agency to oversee consumer financial services, and the recently enacted Dodd-Frank Wall Street Reform and Consumer Protection Act embraced the Administration’s proposal by creating the Bureau of Consumer Financial Protection. Other regulatory reforms have been advanced, and in some cases adopted, in recent years, at both the federal and state level. In this paper, we provide an overview of consumer financial markets, detailing the purposes they serve, the extent to which they suffer from market failures or other deficiencies, and the structure of our current system of regulation. To illustrate our analytical framework, we present case studies on retirement savings, residential mortgages, payday lending, and mutual funds. We conclude with a series of observations on the limits of government intervention, suggestions about how to measure whether government intervention is successful, and potentially fruitful lines of future research and data collection.

Ascertaining which enforcement mechanisms work to protect investors has been both a focus of recent work in academic finance and an issue for policy-making at international development agencies. According to recent academic work, private enforcement of investor protection via both disclosure and private liability rules goes hand in hand with financial market development, but public enforcement fails to correlate with financial development and, hence, is unlikely to facilitate it. Our results confirm the disclosure result but reverse the results on both liability standards and public enforcement. We use securities regulators’ resources to proxy for regulatory intensity of the securities regulator. When we do, financial depth regularly, significantly, and robustly correlates with stronger public enforcement. In horse races between these resource-based measures of public enforcement intensity and the most common measures of private enforcement, public enforcement is overall as important as disclosure in explaining financial market outcomes around the world and more important than private liability rules. Hence, policymakers who reject public enforcement as useful for financial market development are ignoring the best currently available evidence.

In this essay written in honor of the retirement of Eddy Wymeersch, Professor Howell Jackson explores the manner in which European nations have moved towards more consolidated systems of financial regulation and discusses the implications of the European experience for the United States. While U.S. policy debates over regulatory reform often reduce to theoretical claims regarding the benefits and pitfalls of consolidation, the consolidation of oversight within the members states of the European Union offers many concrete examples of how consolidated supervision actually works. European experience demonstrates that there are many different ways in which to implement consolidated regulation, and often times the process of consolidation occurs gradually over a number of years. In addition to the expected advantages of increased efficiency and the elimination of regulatory gaps, European experience suggests that consolidated regulatory agencies often attract higher quality personnel and do a better job maintaining consistency across different sectors of the financial services industry. In addition, European reforms have devised a number of mechanisms to ensure that consolidated agencies remain politically accountable and resolve policy conflicts in an efficient and timely manner.

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In choosing financial products and services, consumers often rely on financial advisers to recommend products or services. With surprising frequency, these advisers receive side payments or other forms of compensation from the firms that provide the products or services the advisers recommend. Many times these payments are not clearly disclosed to consumers; often they are entirely secret. These practices, which I label the trilateral dilemma of financial regulation, raise concerns that advisers may be giving their customers biased advice. Side payments of this sort also have the potential to increase the cost of financial products and services. In this article, I describe how trilateral dilemmas have arisen in many different sectors of the financial services industry, including mortgage lending, retirement savings, investment management, insurance brokering, student loans, and banking services. I then review the many different regulatory strategies that Congress and regulatory agencies have employed to police trilateral dilemmas and assess the efficacy of these techniques in solving the problems that side payments of this sort pose. I also evaluate the possibility that side payments and other forms of indirect compensation may in fact be an efficient or at least innocuous means of financing the cost of distributing financial products and services. The article concludes with a brief discussion of how consumer education might address trilateral dilemmas.

This essay proposes a phased transformation of financial regulation in the United States to focus the Federal Reserve Board on oversight of market stability, including systemically important institutions throughout the financial services industry, and to assign all other regulatory functions, including routine supervision and consumer protection, to an independent consolidated agency. I. The authority of the Federal Reserve Board to oversee financial market stability should be expanded to cover all sources of systemic risk in the financial services industry, should be structured to coordinate effectively with other supervisory agencies, and should be designed to allow for consistent, appropriate forms of intervention in response to systemic risks. II. Even after the authority of the Federal Reserve Board has been expanded, the consolidation of other federal financial regulatory functions should proceed; the experience of other leading jurisdictions indicates that consolidated supervision offer numerous benefits in terms of the quality and completeness of financial regulation and that the principal objections to consolidated supervision can be met through statutory safeguards and institutional design. III: Experience in other leading jurisdictions also demonstrates that many of the benefits of consolidated oversight can be achieved without the statutory consolidation of front-line supervisory units and the world's premiere consolidated agency, the British FSA, was established in a multi-stage process whereby the enactment and implementation of new substantive statutes did not occur until the FSA has been in operations for several years. IV. Drawing on these experiences, U.S. regulatory consolidation should follow a four-stage process: 1) immediate enhancement of the President's Working Group on Financial Markets; 2) prompt enactment of legislation creating an independent United States Financial Services Authority (USFSA or Authority) to provide industry-wide oversight, coordinate existing regulatory structures, and lay the groundwork for combination of existing supervisory agencies; 3) a second round of legislation authorizing the merger into the USFSA all other federal supervisory agencies; and 4) resolution of the organizational structure of the Authority should be postponed until regulatory consolidation is complete. V. This four-phase approach to regulatory consolidation improves the likelihood of successful transition by delaying controversial decisions, avoiding unnecessary steps, and providing an organizational structure that can lead reform while safeguarding continuity of supervision. VI. The creation of a United States Financial Services Authority is also consistent with expansion of the Federal Reserve Board's role in overseeing market stability and would actually improve the capacity of the Board to perform that function effectively.

The International Bar Association's Securities Law Subcommittee of the Task Force on Extraterritorial Jurisdiction, comprised of a panel of academics, practitioners, senior in-house counsel at financial institutions and former regulators, has produced this report examining the need for reform of the regulation of the global securities markets. The report reviews approaches to addressing problems such as mutual recognition, regulatory convergence and disparities in enforcement intensity and makes a series of recommendations. The Subcommittee urges reform of domestic regulatory systems with a view towards its international impact and argues that such reform should be an urgent priority for legislative and regulatory bodies in major financial centers. (Full list of Subcommittee members located in the text of the report.)

Public discussion of federal fiscal policy typically focuses on several familiar metrics of performance, including the total deficit, the level of public debt and percentage of federal spending committed to mandatory spending and net interest payments. While useful, these measures are based on accounting conventions developed years ago, and do not capture many of the ways in which the federal government now commits public resources, including obligated budget authority, guarantees associated with various government insurance programs, retirement benefits for federal workers and military personnel, and - most substantially - federal social insurance programs such as Social Security and Medicare. Collectively these programs and activities represent substantial and largely overlooked current commitments of future federal resources. After reviewing current measures of fiscal performance, the article presents several alternative ways to quantify federal financial performance over the first half of this decade utilizing more comprehensive measures of mounting federal financial obligations. So, for example, while the commonly reported total deficit of the federal government in FY2005 was $318 billion, a more comprehensive measure of fiscal results over the course of the same year would have shown a deterioration in the country's net financial position in excess of $3.3 trillion - that is, an order of magnitude larger. To promote more informed debate and encourage more responsible public leadership, the more comprehensive measures of fiscal performance described in this article should be adopted as the primary metrics for reporting the financial performance of the federal government. (US, Canada).

An Interdisciplinary Approach to Budget Policy Elizabeth Garrett, Elizabeth A. Graddy, Howell E. Jackson. 6 Counting the Ways The Structure of Federal Spending Howell E. Jackson In the realm of budget policy, numbers are important. ... and suggestions from participants at the February 2006 Conference on Fiscal Challenges: An Interdisciplinary Approach to Budget Policy held at USC Law School and ...

This article presents the second installment of an empirical investigation into regulatory competition in international securities markets. It contributes to the current debate about competitiveness of U.S. capital markets by offering an account of transatlantic capital raising practices at the height of technology boom of the 1990s and before the passage of the Sarbanes-Oxley Act of 2002 and the corporate scandals that precipitated the Act. This article provides evidence that European issuers in the late 1990s were already turning away from U.S. public capital markets. While regulatory considerations appear to have played a role in that trend, even more important were the growing importance of private means of access of U.S. capital, the increased off-shore presence of U.S. institutional investors, and the relatively unsatisfactory trading performance of many foreign issuers that had gone to the trouble of obtaining U.S. public listings early in the 1990s. The picture of transatlantic capital raising presented in our survey suggests that the recent decline in competitiveness of U.S. capital markets may well be more a product of long-standing trends in global financial markets than a response to the Sarbanes-Oxley Act or other requirements of federal securities laws. We have supplemented our original analysis with a post-script from the vantage point of 2008 to draw connections between our findings and those of recent academic literature.

Stock exchanges around the world have recently discarded their traditional mutual membership structure in favor of a for-profit corporate format. This development increased fears of conflicts of interest, as for-profit exchanges are more sensitive to pressures from their constituents and more likely to abuse their regulatory powers. In this Article, we explore the allocation of regulatory responsibilities to market infrastructure institutions, administrative agencies, and central government entities in the eight most influential jurisdictions for securities regulation in the world. Examining how different jurisdictions answer this question is particularly pressing given the December 2006 transatlantic stock exchange merger activity. After discussing the role of self-regulatory organizations in the oversight of modern stock exchanges, we report the results of a survey of the allocation of regulatory powers in a sample of eight key jurisdictions. In that survey, we examine the allocation (of such powers at three levels: rulemaking, monitoring of compliance with these rules, and enforcement of rules violations. Based on our findings, we categorize these jurisdictions in three distinct models of allocation of regulatory powers: a Government-led Model that preserves significant authority for central government control over securities markets regulation, albeit with a relatively limited enforcement apparatus (France, Get-many, and Japan); a Flexibility Model that grants significant leeway to market participants in performing their regulatory obligations, but relies on government agencies to set general policies and maintain some enforcement capacity (United Kingdom, Hong Kong, and Australia); and a Cooperation Model that assigns a broad range of power to market participants in almost all aspects of securities regulation, but also maintains strong and overlapping oversight of market activity through well-endowed governmental agencies with more robust enforcement traditions (United States and Canada).