Robert M. Lawless and Elizabeth Warren
This article assesses the state of empirical legal research and chronicles the field's history focusing on bankruptcy. This article begins with a discussion of what might have attracted bankruptcy scholars to extract an empirical vein in their scholarly work. It offers a short chronicle of the development of empirical bankruptcy scholarship from Justice Douglas to the current generation. Because of the relative paucity of such scholarship outside the U.S., this chronicle inevitably focuses on that country. It is divided into separate discussions of individual and corporate bankruptcy. It elaborates the substantial amount of empirical scholarship in bankruptcy as compared with other fields, the grounds on which academic debates play out offer significant explanatory factors. This article concludes with some discussion regarding empirical questions on which bankruptcy scholars might probably focus future attention.
This Chapter examines conduct of business (COB) regulation, which governs the conduct of financial intermediaries in providing financial products and services. It considers financial intermediaries’ functional lines of business, particularly their securities activities. The Chapter discusses the rationales for COB regulation, the modal regulatory strategies used, and frameworks within which COB regulation operates. It then looks at COB regulation in the US, focusing on important market and regulatory developments in recent decades, including the adoption of a bifurcated regulatory regime in the aftermath of the 1929 market collapse and Great Depression; divergent rules of conduct, with reference to duties of loyalty and care; disclosure practices; and remuneration-based risks faced by broker-dealers. COB regulation in the US is then compared with that in Australia and the EU. Finally, the Chapter assesses reforms that have been proposed or adopted in the wake of the global financial crisis of 2007–09.
Dimity Kingsford-Smith and Olivia Dixon
This Chapter examines the paradox underlying the regulation of consumer interest in financial markets. It explains how consumer interest in financial markets is shaped by the ‘financialization’ of welfare provision. The discussion begins by considering the paradoxical need to regulate to reduce investment risk while also regulating to retain risk. The Chapter then looks at consumer interest in goods and services markets, the concept of ‘financial citizen’ and its limitations especially the insights of behavioural psychology and financial literacy, financialization, and citizenship. It also describes the ‘financial citizen’ as protected investor and as well-informed and confident investor or consumer. Finally, it analyses the regulation of the ‘financial citizen’ since the 2007–09 global financial crisis, with reference to the creation of consumer protection authorities, product intervention, mortgage-lending practices, simplified product disclosure, mitigation of conflicts of interest in financial advice, the distinction between wholesale and retail investors, and institutional restructuring.
This chapter argues that poverty is created, maintained, and regulated. Global poverty occupies a unique position as both the ‘blind spot’ and raison d’être of an international legal system that has long attempted to secure a veneer of cooperation, justice, and legitimacy over a reality of competition, conquest, and exploitation. As such, it vividly illustrates the radical indeterminacy and ‘schizophrenia ‘ that ‘ tear[s] apart the fragile structure’ of international law. That this contradiction appears to be little analysed, that there is so little conversation to detail, is testament to the strategies deployed to naturalize, excuse, and obscure the ‘fact’ of poverty.
Douglas W. Arner
This Chapter discusses regulation and supervision of financial institutions operating across borders. The cross-border supervision of internationally active financial institutions raises a distinct set of institutional and coordination risks to financial stability. It begins with a discussion of questions relating to market access and licensing before turning to questions of supervision, regulation, and resolution. The Chapter concludes with a discussion of the outlook for continued globalization of financial services.
This chapter examines the provisions of the Treaty on the Functioning of the European Union regulating capital movements both within the internal market and between Member States and third countries (Articles 63–65 TFEU). It reflects critically on the impact of these provisions on the activities of two distinct categories of market participant: corporate actors and (Union) citizens. The legal framework governing both intra- and extra-EU capital movements is characterized as an unusual mixture of the familiar and the exceptional. On the one hand, the free movement of capital is now an integral part of the internal market. At the same time, however, it retains key distinguishing features: a unique evolutionary trajectory; an external scope of application; and an uncharacteristic degree of residual direct Member State control.
Luca Enriques and Sergio Gilotta
This Chapter examines the debate over mandatory disclosure (MD) to the general public as a regulatory technique for financial markets, with emphasis on issuers of securities. It begins by outlining the goals that underlie MD as well as the various rationales for MD as opposed to voluntary disclosure, paying particular attention to information as a public good, externalities entailed by corporate disclosure, the agency problem, the need for a subsidy to informed traders, and standardization in information. It then discusses the limits and costs of MD before concluding with an assessment of some of the challenges faced by policymakers with regard to MD.
This Chapter examines evidence on the structure of ownership, control, and financing of corporate sectors in developed countries to draw lessons for economic development and the development of financial markets. It records the critical role that equity markets played in the ownership and financing of corporations throughout the twentieth century and how this occurred in the absence of formal systems of regulation, relying on a variety of informal institutional arrangements. The Chapter contrasts these informal arrangements in equity markets with the formal regulation that is required in banking. It describes the shift from micro-regulation of individual banks to the macro-prudential regulation of banking systems as a whole. It argues that these should be part of a clearly defined partnership between the state and banks by which the state protects core components of a banking system in return for banks delivering key economic and public functions. Finally, the Chapter questions whether the traditional elements of financial markets are correct in light of, first, the explosion of mobile money and, second, the emergence of China and Korea as major economic powers with equity markets that are very different from standard models.
This chapter deals with issues of regional economic integration in a comparative perspective. It is divided into two parts: a conceptual and a theoretical part. The conceptual part starts with a definition and typology of economic integration. It then presents features of institutional design that capture the institutional variation and development of regional economic integration. This conceptual apparatus has been used recently to map regional economic organizations and describe their variation and development. The theoretical part begins with economic theories of integration, which have, however, little to say about the political process of integration and the role and effects of institutions and organizations. It then moves on to political theories of economic integration, which have mainly been developed in the context of European integration: intergovernmentalism, supranationalism, and constructivism.
This Chapter deals with enforcement and sanctioning as part of financial regulation. It examines issues such as the role of private enforcement in supplementing public enforcement, the extent to which individuals should be held accountable compared to their employers, and how to design effective sanctions. It first provides an overview of enforcement strategies that a regulator may adopt, followed by a discussion on enforcement and its relation to the compliance strategies employed by regulated firms. It then reviews empirical studies of enforcement activity in the UK and the US, with particular emphasis on the impact of different enforcement styles, including private enforcement. It also explores the role of discretion in enforcement, along with the type of sanctions and how they are applied to individual cases. The article concludes by analysing the mechanisms used by regulators to facilitate enforcement in cases where financial markets and firms have a cross-border dimension.
This Chapter traces the evolution of theories and methods in law and finance following the financial crisis in 2008. It begins by analysing the notion of financial (and other) markets as complex, adaptive systems before turning to a discussion of the efficient capital market hypothesis. It then looks at the emergence of prices as a learning process, in which agents adjust their expectations and actions to a changing environment. It also examines the implications of behavioural economics for law and finance, along with the coevolution of the legal and financial systems. In addition, the Chapter considers methodological issues arising in the context of the empirical study of law and finance, with reference to data-coding techniques (‘leximetrics’) and statistical methods (time-series econometrics). Finally, it discusses how financial crises can be better understood by means of a learning model of the policymaking process.
This article analyses the current state of empirical legal research in the law and the regulation of financial markets. It aims to provide a brief survey of the main work done either by lawyers or by others but which is pertinent to the operation of law and regulation. It focuses on six main areas of research and debates. These are the debates on the efficient markets hypothesis and mandatory disclosure rules in securities regulation; studies on behavioralism and their impact on disclosure as a tool for protecting investors; studies on the impact of rules relating to market misconduct on market development; research into the relationship between legal rules and securities market development; evidence of the unintended impacts of regulation; and research into the dynamics of financial market regulatory regimes. Finally, this article mentions that understanding the general context in which law and regulation operates deepens our understanding of the nature, potential, and limits of law and regulation themselves.
This chapter considers the evolution and main features of EU financial markets regulation and scholarship. It focuses on three distinct themes that define the field. First, it considers the transformative ambitions of the regulatory programme with respect to the embedding of market finance and the construction of the internal financial market. Second, it considers the striking shifts in the location and intensity of financial markets intervention that have characterized the field and their implications. Finally, it considers the extent to which EU financial markets regulation has been the seat of major institutional innovation and constitutional uncertainty, and compares the different dynamics of institutional innovation with respect to EU banking regulation (including in relation to Banking Union). It concludes with some modest predictions for the future.
This Chapter examines why financial markets are prone to crisis and the relationship between financial crisis and regulation. It first provides an overview of financial crises generally before assessing the historical role of regulation in financial crises and its potential in averting future crises. It then considers various theories that have been put forward to explain why financial crises arise, with particular reference to theories that invoke cognitive error, moral hazard, information asymmetry, and agency costs. It also looks at arguments concerning market efficiency vs market failure, the potential positive and deleterious aspects of financial regulation and financial crises, and policy instruments that are available to regulators. More specifically, the Chapter analyses governance mechanisms, bank capital requirements, capital controls, and lender of the last resort.
This chapter explores the interplay between politics and international law in the field of climate finance, with an emphasis on its North-South dimensions, which is the promotion of resource flows by developed nations towards developing nations. Participation by developing countries in the climate regime is critical as they are the largest emitters of greenhouse gas. Unfortunately, it is the less-developed nations that are harmed the most by climate change. It is here where North-South finance emerges as an important issue. The chapter addresses two critical issues in the governance and future of the climate finance regime. First, the wide variety of institutions and mechanisms involved expands the scope for attracting and supplying resources but they remain fragmented and require greater coordination to be effective. Second, the mobilization of North-South finance is insufficient relative to mitigation and adaptation needs. Such a challenge requires greater political will and a stronger legal regime.
This Chapter examines controversial issues surrounding the design of supervisory institutions for financial markets. It begins by considering the main institutional models identified in the literature and those implemented in selected countries such as Australia, Canada, France, Germany, the UK, and the US. It then discusses the significance of institutional design, the public character of supervision and the role of self-regulation, and the role of central banks in financial supervision. It also analyses the mandates and powers of supervisory agencies, together with supervisory accountability, governance, and transparency. The Chapter concludes by focusing on supervisory costs and funding models, and suggesting that there is no single ‘right’ or ‘wrong’ institutional model for financial supervision.
Chris Brummer and Matt Smallcomb
This Chapter explores dispute resolution in international trade and finance, with emphasis on the varying ideological and historical foundations of the two fields. It describes how dispute resolution mechanism has flourished more easily in trade than in finance. It also considers the World Trade Organization’s dispute settlement mechanism and provides an overview of the domestic origins of financial regulation. In addition, the Chapter discusses how the cross-border banking crisis in the 1970s, the Asian financial crisis of 1997, and the financial crisis of 2008 have intensified the demand for dispute resolution in finance. The factors mitigating against the formalized dispute resolution in the international regulation of financial institutions are examined, as well. Finally, the Chapter assesses the pros and cons of trust-building as a means to make way for a legalized dispute resolution regime for international finance similar to the one that governs international trade.
The international financial architecture (IFA) can be viewed as a landscape crowded with different international bodies that share responsibilities for the prevention of global financial instability. These bodies include international organizations (IOs), such as the international financial institutions (IFIs) (e.g. the International Monetary Fund [IMF] and the World Bank), intergovernmental fora (e.g. the G7, G10, and G20), and transnational networks of regulators and supervisors (such as the Bank for International Settlements [BIS] and the Basel Committee on Banking Supervision [BCBS]). This chapter examines the dispersion of governance functions in the IFA. It focuses on the relationship between two key bodies — the Financial Stability Board (FSB) and the IMF — and applies the insights of the IO literature to illuminate the sources of organizational conflict between the two bodies. It argues that the problems in the FSB-IMF working relationship can be attributed to the different terms of their delegations, memberships, and organizational cultures. These factors, in turn, can be explained by the insights of the rationalist, realist, and constructivist frameworks.
Niamh Moloney, Eilís Ferran, and Jennifer Payne
This handbook examines the major themes associated with financial regulation as well as the range of policy design innovations and scholarly perspectives that have influenced it. It considers the ramifications of the 2008 global financial crisis for financial regulation and fundamental questions as to the role of the state in the financial system. The book is organized into six parts. Part I looks at the relationship between the financial system and regulation, focusing on themes such as the evolution of theory and method in law and finance and the relationship between economic development, financial systems, and law. Part II analyses the organization of financial regulation from institutional and system-based perspectives, with particular emphasis on the European Union and the United States. Part III describes how financial regulation seeks to achieve particular outcomes using a number of particular regulatory and supervisory strategies as well as market-based institutions and mechanisms. Parts IV to VI deal with the three major recurring objectives of financial regulation over the past three or four decades and which remain widely used as the primary organizational tools of financial regulation scholarship and policy: financial stability; market efficiency, integrity, and transparency; and consumer protection.