Volume 92.2
March
2025

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Essay
Volume 92.2
The Constitutional Money Problem
Brian Galle
Professor of Law and Agnes Williams Sesquicentennial Chair in Tax Policy, Georgetown University Law Center.
Aziz Z. Huq
Frank and Bernice J. Greenberg Professor of Law, The University of Chicago Law School, supported by the Frank J. Cicero Fund.

Under the Supreme Court’s contemporary approach to constitutional meaning, there is a surprising degree of doubt about whether key aspects of the Federal Reserve (“Fed”)—its independence from Congress and the President, and even its power to create money—are constitutional. In particular, we propose that the structure and monetary authority of the Fed can be justified by Article I, Section 8 borrowing power, and by the Public Debt Clause of the Fourteenth Amendment. In 1935, eight members of the Court agreed that these provisions require credible commitments: to meaningfully exercise the borrowing power, Congress must be able to promise creditors it will not undermine the value of its debts. We argue that judicial enforcement of sovereign promises is unlikely to fulfill this goal. Instead, the exercise of monetary authority by independent central banks is the most promising current solution to the credible sovereign borrower problem.

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Essay
Volume 92.2
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
Volume 92.2
Public Investment as Constitutional Power and Accountability Challenge
Saule T. Omarova
Earle Hepburn Professor of Law at the University of Pennsylvania.

We thank Aziz Huq, Adriana Robertson, and all participants in conferences and workshops at the University of Chicago and Cornell Law Schools.

Brian Richardson
Associate Professor of Law at Cornell University.

We thank Aziz Huq, Adriana Robertson, and all participants in conferences and workshops at the University of Chicago and Cornell Law Schools.

We offer a way of thinking about public-investment institutions as creatures of both public law and private markets. Placing public investment—a distinct public function—in the context of constitutional debates on the legitimate reach of the administrative state, we focus the search for legitimate institutional structure on the interaction between the entity’s efficacy as a market actor and the concept of public accountability. This tension, as well as synergy, is where the fundamental hybridity of public-investment institutions is most visible. We argue that only by considering the unique objectives and tools of public investment as a legitimate sovereign activity can we design workable mechanisms of democratic accountability for public-investment institutions. We hope that our observations shed light on the broader debate about the optimal implementation mechanisms for the nation’s reemerging industrial policy.

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Essay
Volume 92.2
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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Volume 92.2
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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Essay
Volume 92.2
Securities Regulation and Administrative Law in the Roberts Court
David Zaring
Elizabeth F. Putzel Professor, The Wharton School at the University of Pennsylvania.

Thanks to Vincent Buccola, Christine Chabot, Haiyun Damon-Feng, Donna Nagy, Christina Skinner, Chris Walker, and for comments at presentations at the University of Chicago, the 2024 ABA Administrative Law Section Spring Meeting, and the 2024 National Business Law Scholars Conference. Thanks also to Rachel Shoemaker and Elizabeth Weise for research assistance.

This Essay compares a judicial revolution that is happening to one that is not. Both the change and the status quo are being managed by the current Supreme Court. That Court has, when it comes to administrative law, shown a capacity to revisit everything. But when it comes to securities regulation, it has resisted change. What is the explanation for this divergent approach between general regulation, which the Court has sought to police, and securities regulation, which the Court has left alone? Some scholars have argued that the Supreme Court is simply uninterested in securities regulation, but the Court now hears proportionately more securities cases than it once did. Others dispute the premise that the Court supports corporate America. And, of course, the Roberts Court could change its approach to securities regulation in time. But I think the divergence suggests that the Court wants to police public rights and rights against the state but is less interested in reformulating the standards for private disputes, such as disputes between shareholders and managers.