Banking Law

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Essay
Regionalism and the Federal Reserve Banks
Kathryn Judge
Harvey J. Goldschmid Professor of Law at Columbia Law School.

The authors are grateful to Scott Baker, Michael Held, Patricia Mosser, Nathan Tankus, and the participants at the Washington University Law and Economics Workshop and the Women in Law and Finance Workshop at Wharton for helpful comments on earlier drafts. Brian Japari and Alex MacDonald provided exceptionally helpful research assistance. Research for this publication is made possible in part by The Leichtman-Levine Faculty Research Fund at Columbia Law School.

Lev Menand
Associate Professor of Law at Columbia Law School.

The authors are grateful to Scott Baker, Michael Held, Patricia Mosser, Nathan Tankus, and the participants at the Washington University Law and Economics Workshop and the Women in Law and Finance Workshop at Wharton for helpful comments on earlier drafts. Brian Japari and Alex MacDonald provided exceptionally helpful research assistance. Research for this publication is made possible in part by The Leichtman-Levine Faculty Research Fund at Columbia Law School.

Regionalism is central to our country’s central banking system. Rather than rely on a single organization, Congress created twelve Federal Reserve Banks (FRBs), each in a different part of the country. These FRBs are an undertheorized example of how the federal government uses regional bodies to formulate and administer federal policy. This Essay examines the regional aspect of the FRBs, distinguishing between three types of regionalism: regional policy variation, regional policy formulation, and regional policy implementation. Regional policy variation makes less and less sense in today’s national and interconnected financial system. The trend of shifting decisions from the FRBs to national bodies should be continued. But regional voice and implementation should be retained. The Open Market Committee is critical for incorporating regional perspectives into uniform, national policy, and the FRBs carry out these policies at a regional level in ways that enhance legitimacy, improve efficacy, and promote resiliency.

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Essay
Financial Stability and Bank Agency Discretion
Christina Parajon Skinner
Associate Professor, The Wharton School of the University of Pennsylvania; Co-Director, Wharton Initiative on Financial Policy and Regulation; Research Member, European Corporate Governance Institute.

The pursuit of financial stability goals over the past fifteen years has fueled the perception that a regulatory “expertocracy” governs the field of banking, rather than market forces. This Essay discusses four areas where financial stability or systemic risk mandates—either express or assumed—empowered bank regulators and supervisors to substitute their judgment for that of Congress: (1) the Financial Stability Oversight Council’s power to designate nonbank systemically important financial institutions; (2) the Federal Deposit Insurance Corporation’s power to bail out uninsured bank depositors; (3) the adoption of inter-national standards of bank regulation through Basel; and (4) the Federal Reserve and Office of the Comptroller of the Currency’s power to deny bank merger applications on financial stability grounds.

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Essay
Central Clearing the U.S. Treasury Market
Yesha Yadav
Milton R. Underwood Chair, Associate Dean and Professor of Law, Vanderbilt Law School.

We benefited greatly from thoughtful comments and conversations in the preparation of this Essay. The authors are enormously grateful to Dan Awrey, David Bowman, Jonathan Brogaard, Adam Copeland, Darrell Duffie, Ellen Correia Golay, Frank Keane, Kate Judge, Megha Kalbag, Mike Koslow, Dina Marchioni, Rebecca McCaughrin, Saule Omarova, Julie Remache, Morgan Ricks, Will Riordan, Pradeep Yadav and participants at the University of Chicago Law Review’s Symposium on Financial Regulation in the Crucible: Private and Public Law Perspectives on a Sector in Crisis. We are also most appreciative of the extraordinarily talented editors and staff at the University of Chicago Law Review for their careful edits, commentary and patience. The views expressed by the authors are their own and may not reflect the views of the Federal Reserve Bank of New York or the Federal Reserve System.

Joshua Younger
Policy Advisor at the Federal Reserve Bank of New York and Lecturer in Law at Columbia Law School.

We benefited greatly from thoughtful comments and conversations in the preparation of this Essay. The authors are enormously grateful to Dan Awrey, David Bowman, Jonathan Brogaard, Adam Copeland, Darrell Duffie, Ellen Correia Golay, Frank Keane, Kate Judge, Megha Kalbag, Mike Koslow, Dina Marchioni, Rebecca McCaughrin, Saule Omarova, Julie Remache, Morgan Ricks, Will Riordan, Pradeep Yadav and participants at the University of Chicago Law Review’s Symposium on Financial Regulation in the Crucible: Private and Public Law Perspectives on a Sector in Crisis. We are also most appreciative of the extraordinarily talented editors and staff at the University of Chicago Law Review for their careful edits, commentary and patience. The views expressed by the authors are their own and may not reflect the views of the Federal Reserve Bank of New York or the Federal Reserve System.

The market for Treasury securities, a deep and liquid market for risk-free debt, has anchored an ambitious and creative U.S. dollar economy while also ensuring the safety and soundness of its financial and monetary system. But as the market has grown, a series of disruptions to Treasury market trading have prompted policymakers to explore measures to strengthen the market’s foundations and shore up its resilience. This Essay considers this regulatory response. It focuses on the introduction of mandatory central clearing for most trades in U.S. Treasuries—a proposal seeking to significantly reshape the day-to-day functioning of the Treasury market. Central clearing is a well-established means by which to reduce the risk of loss associated when trading parties default. We analyze this mandate, detailing its likely advantages as well as its potential trade-offs from a public policy perspective.

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