Hal Scott

A group that represents executives from some of the largest U.S. banks concluded in a paper that the Federal Reserve likely acted illegally in adopting central parts of its annual stress tests, the latest evidence that some in the banking industry are contemplating a potential lawsuit. The Committee on Capital Markets Regulation, a nonprofit organization of academics and financial executives, was set to release the paper Thursday, and The Wall Street Journal reviewed a copy. The groups’ members include senior executives at big banks J.P. Morgan Chase & Co., Citigroup Inc., Goldman Sachs Group Inc., Wells Fargo & Co., and State Street Corp...The Committee on Capital Markets Regulation is funded by its members. Hal Scott, director of the committee and a Harvard Law School professor and director of the school’s Program on International Financial Systems, said he wrote the paper along with the committee’s staff. Mr. Scott said in an interview that work on the paper began about six months ago after discussions with members of the group, and that the group approved it. He said the paper has “absolutely no connection” to industry discussions about potential litigation against the Fed, and that he was unaware of those discussions before the Journal reported them.

If drafts of the Republican Party platform are any indication, banking -- specifically, reshaping financial regulation -- would be a big priority under a Trump administration...Hal Scott, professor of law at Harvard Law School and director of the Committee on Capital Markets Regulation, sees the platform as a positive step toward paring back regulation he says is stifling the economy. "Some people have had their heads in the sand in thinking that overregulation doesn't have any negative impact on growth," Scott says.

London's position as one of the world's premiere financial centers is bound to change in the wake of a vote to leave the European Union. In coming years, it's highly possible that major companies in London will no longer have unfettered access to the EU — and many firms have voiced a need to move employees elsewhere. That's where Dublin comes in...Ireland's economic growth soared from the mid 1990's until the financial crisis. The tax system was a big part of both the boom and the recovery, according to Hal Scott, professor of international financial systems at Harvard Law School. "They made a big comeback after the crisis. Ireland was very inviting," Scott said. "They're doing very well again." Ireland opened itself as a sort of a back office to banks and operations that can be done from anywhere, like clearing of settlements, he said. It's likely to ramp up similar business post-Brexit.

Clyde Prestowitz, Economic Strategy Institute, and Hal Scott, Harvard Law School, discuss the potential outcomes should the U.K. vote to leave the European Union.

A UK departure from the European Union could trigger a massive panic for financial markets, similar to what took place after the collapse of Lehman Brothers in September 2008, according to one expert. "It could be [a Lehman event]," said Hal Scott, a professor at Harvard Law School and author of "Connectedness and Contagion: Protecting the Financial System from Panics." "I don't think we will see that, but there's not an insignificant possibility that would happen -- we need to be worried about that." Scott said a Brexit could prompt investors to ditch short-term bonds in favor of safer, longer-term Treasuries and cut off liquidity to banks and nonbanks, including money market funds and broker-dealers. "In 2008, that's what we saw after the Lehman collapse," he added. "That was part of the panic -- a run on the financial system."

Already the pound is dropping, money is moving into bonds, London stocks are declining, and central banks in the U.S. and Europe are looking at contingency plans to stave off market shocks if Britain votes Thursday to leave the European Union....“What I’m concerned about is the unpredictable,” said Hal Scott, a Harvard law professor and expert on international finance and securities regulations. His biggest worry about a Brexit is the possibility that it could set off a panic that leads to a global financial crisis, something akin to what happened in 2008 after the Wall Street firm Lehman Bros. filed for bankruptcy. Big banks may be better capitalized than a decade ago, but Scott argues that the U.S. is less equipped today to respond to a run on the financial system. That’s because the Dodd-Frank financial reform legislation, adopted in part to prevent future bailouts of big financial firms, would prevent some of the moves government officials had available in 2008 to rescue broker dealers, hedge funds, insurance firms and other so-called non-banks, which are vital to the stability of the financial sector.

An op-ed by Hal Scott. The Federal Reserve and the Federal Deposit Insurance Corp. recently determined that five of America’s largest banks do not have credible plans to go through bankruptcy without relying on extraordinary government support. If these five firms— J.P. Morgan Chase, Bank of America, Wells Fargo, Bank of New York Mellon and State Street—can’t develop “living wills” that satisfy regulators, then the Dodd-Frank Act authorizes the government to break them up as soon as 2018. What led to their failing grades on living wills? It can’t be lack of effort: Every year, American banks can each spend more than $100 million and one million hours preparing them, according to the Government Accountability Office (GAO). The real reason for failure is that the banking regulators have not disclosed enough details about how they assess the credibility of a living will. This opaqueness casts serious doubt on the legality of the determinations—and the threat to break up the banks.

An op-ed by Hal Scott. In remarkably unusual public statements, Treasury Secretary Jacob Lew has aggressively criticized U.S. District Court Judge Rosemary Collyer’s legal decision to invalidate the Financial Stability Oversight Council’s designation of MetLife as a systemically important financial institution (SIFI). Mr. Lew asserts that Judge Collyer overturned FSOC’s conclusion that MetLife is a SIFI and that her decision contradicted key policy lessons from the financial crisis. He’s wrong. Judge Collyer makes no specific determination as to whether MetLife is a SIFI and certainly does not base her judicial decision on the policy lessons of the financial crisis.

IOSCO and PIFS-HLS jointly developed a two-phase program aimed at offering IOSCO members an executive education program that is tailored to, and exclusively for, regulators of securities markets. The first phase will cover the fundamentals and intricacies of securities regulation and compliance while the second phase will examine current and future regulatory challenges and emerging issues. This new program is part of IOSCO´s ongoing capacity building efforts and is in response to the needs and growing demands for enhanced education and training of regulators of securities markets globally. ...Prof. Hal S. Scott, Nomura Professor and Director of the Program on Financial Systems at Harvard Law School, said, “We are excited to work for the first time together with a global standard setter in shaping the securities regulators of tomorrow and increasing and enhancing their regulatory skills in protecting investors and ensuring the integrity of the capital markets and strengthening financial stability.”

Housing rights advocates interrupted an event featuring Federal Housing Finance Agency Director Melvin Watt at the Law School Monday evening to protest Watt’s housing finance policies, prematurely ending the event and prompting questions about security protocol at the school. The event, organized by Law School professor Hal S. Scott, was intended to be a “fire-side chat” about federal housing policy. Scott said he heard beforehand that activists might protest, and as a result, Harvard University Police Department assigned two plainclothes officers to the event at the request of Law School administrators.

European central bankers this week began testing how a bank default would pressure certain trade-plumbing firms, the latest sign of concern over the clearinghouses that aim to limit markets’ vulnerability to the damaging fire sales that characterized the 2008 crisis...Hal Scott, Nomura professor of international financial systems at Harvard Law School, said when comparing all last-resort lending powers across Europe, the U.K., Japan and the U.S., the Fed has “the weakest of the four,” in part because of new restrictions placed in the postcrisis Dodd-Frank law.

Hal S Scott, Nomura Professor and Director of the Program on International Financial Systems (PIFS) at Harvard Law School, believes there is a lot of optimism globally about India. But, he insists the implementation of reforms process is needed to spur the growth further. In an interview with Sanjay Jog, Professor Scott, who was in Mumbai to participate in a global meet, notes that India will benefit in the falling oil price..."I think there is an optimism globally about India and it is reflected in change in leadership and unquestionable potential of India. We have example of China which changed its direction and succeeded."

An op-ed by Hal Scott. Contrary to the views of Michael Lewis and other critics, America’s equity markets are not “rigged.” U.S. investors are actually much better off in today’s high-speed automated marketplace than they were in the old, largely floor-based markets when the NYSE and NASDAQ operated as virtual monopolies. Let’s take a look at the facts. The most important characteristic of strong equity markets is that they provide a fair marketplace for investors to buy and sell stock at the lowest transaction cost possible.

An op-ed by Hal Scott. The United States House of Representatives recently passed the Fed Oversight Reform and Modernization (FORM) Act, which would effectively eliminate the Federal Reserve's authority to act as a lender of last resort to much of the financial system. Without a strong lender of last resort in a financial crisis, as we had in 2008, our financial system could collapse, and our economy and country with it, all in a matter of weeks as people panic unable to get their money. The FORM Act, as Fed Chair Janet Yellen wrote in a letter to congressional leaders before the vote, would effectively prohibit the Fed from lending to non-banks in a crisis.

China and the United States could work together to improve the global financial system in order to achieve a stable and sustainable economic development for the world, officials and experts said at a recent symposium....The US and China have different interests and experiences, so mutual understanding of each other is important, said Hal Scott, director of the program on international financial systems at the Law School of Harvard University. "The cooperation between the US and China over economic issues will affect the world. I think we need to strengthen them by a mechanism for further cooperation," he added.

An op-ed by Hal Scott and John Gulliver. The three-hour shutdown of the New York Stock Exchange last month made headlines world-wide. Despite the brief calamity, investors emerged largely unharmed, because the technical glitch was with the NYSE’s trading platform. The outcome would have been very different had the problem been with the exchange’s consolidated public market data feed—the live feed that lets traders and investors see public bid and ask prices, the price and time of the last trade, and other crucial information. Any future problem with the public market data feed of the NYSE or Nasdaq exchange would cause trading NYSE stocks with $19 trillion in value or Nasdaq stocks with $6.8 trillion in value to come to a halt for an indefinite period. This would shake investor confidence in this country’s public market, and might even affect the attractiveness of U.S. capital markets to private U.S. companies and foreign issuers. There is a way to stop such a shutdown from happening, but it will take a change in regulatory policy.

An op-ed by Glenn Hubbard and Hal Scott. Dodd-Frank restrictions on the Federal Reserve’s powers to act as lender-of-last-resort, coupled with restrictions on federal guarantees for bank deposits and money-market funds, pose a threat to U.S. and global financial stability...The Dodd-Frank Act (July 2010) pulled back the Fed’s lender-of-last-resort powers for non-banks. They can now be exercised only with the approval of the Treasury secretary, and the Fed cannot lend to a single institution as it did with AIG . It must now only lend under a broad program, and must also meet heightened collateral requirements. In addition, the FDIC cannot expand guarantees to bank depositors without congressional approval, and the Treasury can’t do the same to money-market funds without new legislative authority. These changes could make it difficult for the Fed and other regulatory bodies to act effectively in the next crisis.

Virtu Financial’s CEO Vincent Viola is not having a good year. First, his company’s IPO gets cancelled, and now he can’t unload his palatial Upper East Side mansion...“They [Virtu] became a poster-child for people that want to attack high-frequency trading,” said Hal Scott, director of the program on International Financial Systems at Harvard Law School.