Saturday, June 8
The New World of Financial Regulation
Moderator: Prof. John C. Coffee Jr.
Panelists: Meyer Eisenberg ’58, David J. Greenwald ’83, Rebecca J. Simmons ’91, and Margaret E. Tahyar ’87
All-Star Corporate Governance Alumni Come Together at Reunion 2013 for Stirring Discussion of Wins, Losses, and Missed Opportunities to Regulate Financial Markets
Meyer Eisenberg ’58, David J. Greenwald ’83, Rebecca J. Simmons ’91, and Margaret E. Tahyar ’87 Join Panel Discussion on ‘New World of Financial Regulation’
With the three-year anniversary of the Dodd-Frank Act approaching next month, a group of Columbia Law School alumni who are known for their work in the field of financial regulation assembled at Reunion 2013 on June 8 for a thoughtful discussion of how U.S. policymakers’ recent efforts to regulate capital markets have fared. The panel, titled “The New World of Financial Regulation,” covered regulatory changes since the financial crisis, the persistence of systemic risk, and other unresolved issues.
"What 2008 showed us is that regulation needs to be global to work," said John C. Coffee Jr., Adolf A. Berle Professor of Law.
Moderator John C. Coffee Jr., the Adolf A. Berle Professor of Law, launched the conversation with a few general observations about the regulatory structure in the U.S. and one lesson drawn from the recent financial crisis.
Coffee explained that most countries utilize either a single peak system of financial regulation, in which a single regulator holds overarching supervisory authority over all financial institutions, or a dual peak system, wherein authority is split between two regulators (with the latter focusing on consumer protection).
“And then there’s the U.S,” he said. “The U.S. doesn’t have a single peak or a double peak—its structure resembles a small-scale Himalayas.”
With so many agencies embedded in the U.S. regulatory structure, there is room for “regulatory arbitrage” and conflicting approaches, Coffee said. And the Dodd-Frank Act has added another player to seek overall coordination: The Financial Stability Oversight Council, which will chiefly monitor systemic risk.
“What 2008 showed us is that regulation needs to be global to work,” Coffee said.
David J. Greenwald ’83, managing director and international general counsel of Goldman Sachs & Co., said the increasing pace of globalization has amplified the need for coordination between regulators around the world. Various countries have adopted different approaches to regulating derivatives, creating a patchwork of duplicative, sometimes conflicting laws, Greenwald said.
“It wouldn’t be an understatement to say there are multiple food fights going on between regulators over derivatives,” he added.
Meyer “Mike” Eisenberg ’58, a senior research scholar and lecturer-in-law at the Law School, spoke about challenges at the U.S. Securities and Exchange Commission, where earlier in his career he worked in the general counsel’s office.
Eisenberg said there is often debate about how to interpret and apply rules governing financial markets because the issues are inherently complex. He cited the fast-growing money market funds industry as one example of a realm where the SEC has encountered difficulty finding consensus on which regulatory approach to adopt.
"The risk of a clearinghouse going under is small, but that is a deep hole," cautioned panelist David J. Greenwald ’83 (right), managing director at Goldman Sachs.
Sullivan & Cromwell partner Rebecca J. Simmons ’91 said the Dodd-Frank Act is utterly vast in its scope and reach.
Simmons has studied the bill closely, devoting particular attention to the clearinghouses that will regulate swap transactions. Such clearinghouses were designed to mitigate risk by creating central marketplaces for swaps. But what would happen if a clearinghouse failed? Simmons called it an unlikely scenario, but Greenwald argued the impact of such a failure could be dire.
“The risk of a clearinghouse going under is small, but that is a deep hole,” he said.
Margaret E. Tahyar ’87, partner at Davis Polk & Wardwell and lecturer-in-law who teaches a course at the Law School on financial institutions, said these examples all highlight the need for U.S. regulators and stakeholders to engage in rational, levelheaded discussion about the best way to regulate capital markets. The future of the U.S. as a global financial center hangs in the balance, she said.
Tahyar’s firm has been at the forefront of monitoring implementation of the Dodd-Frank Act, and she gave the bill a mixed review, noting that it does not address the lack of mortgage underwriting standards in the U.S.
“We’re a country that has a long history of squabbling among regulators,” said Tahyar.