With an overflowing audience in Penn Law lecture room Gittis 214, David Skeel, Penn Law’s S. Samuel Arsht Professor of Corporate Law, and Richard Herring, Wharton’s Jacob Safra Professor of International Banking and Co-Director of the Wharton Financial Institutions Center, discussed Congress’s legislative response to the financial crisis at a seminar held Monday.
Despite its length (2,319 pages), the Dodd-Frank Act that Congress passed in July has two clear objectives when it comes to Wall Street reform: (1) to regulate derivatives and large financial institutions, and (2) to limit the damage caused by a future failure of a financial institution. Professor Skeel also argued that Dodd-Frank essentially creates a partnership between government and the largest Wall Street banks. As opposed to decreasing the banks’ size and scope, the Act provides regulators with the sweeping authority to bail them out, largely on their own discretion.
Despite his concerns that the Dodd-Frank Act authorizes ad hoc behavior by banking regulators, Skeel did find more promising the Act’s requirement to trade most derivatives on an exchange, backstopped by a clearinghouse, and the Act’s establishment of the new Consumer Financial Protection Bureau.
Professor Herring emphasized that a range of financial institutions and arrangements still remain outside of even Dodd-Frank’s broad scope and that, in time, even banks and other financial institutions that do fall under its terms are likely to find ways to circumvent the spirit of the new law.
The seminar, organized around a discussion of Professor Skeel’s new book, The New Financial Deal: Understanding the Dodd-Frank Act and Its (Unintended) Consequences (Wiley, November 2010), was co-sponsored by the Penn Program on Regulation and the Penn Institute for Law and Economics.