By Libby Benton
Is the international financial regulatory system up to the task of overseeing the global financial system? This question, posed by Michigan Law professor Michael S. Barr, in his recent article “Who’s in Charge of Global Finance?” set the stage for the Center’s May 15 academic workshop. At the workshop, Michigan faculty gathered with scholars from the U.S. and abroad to discuss works in progress related to international financial regulation, a fast-evolving area of international and administrative law. The workshop was the first in Michigan Law’s new series of annual roundtables on transnational law, organized in memory of Michigan Law Professor Eric Stein.
On the workshop’s first panel, David Zaring, Associate Professor of Legal Studies and Business Ethics at the University of Pennsylvania’s Wharton School, and Pierre-Hugues Verdier, Professor of Law at the University of Virginia School of Law, focused on the new tools of international financial regulation. Zaring argued the United States’ post-financial crisis reforms, embodied in the Dodd-Frank Wall Street Reform and Consumer Protection Act, encourage “soft law” regulatory solutions, which threaten to displace customary international law. Verdier made the case that nation-states’ growing use of financial sanctions to achieve state policy objectives is reshaping international financial regulation, by, among other things, dramatically increasing oversight of financial institutions’ activities.
The second panel zeroed in on post-crisis changes in the European Union. Niahm Moloney, Professor of Financial Markets Law at the London School of Economics and Political Science, described the momentous changes in the EU’s financial regulatory system in the wake of the financial crisis, including its new institutions, approaches to risk sharing and supervision, and harmonized rule book. She discussed the implications of these changes and lessons that could be applied to international financial regulation more generally. Nicolas Véron, Senior Fellow at Bruegel and Visiting Fellow at the Peterson Institute for International Economics, discussed the development of the EU’s banking union and the European Central Bank’s growing authority.
On the workshop’s final panel, Yesha Yadav, Associate Professor of Law at Vanderbilt Law School, and Anna Gelpern, Professor of Law at Georgetown Law School, discussed issues facing international financial markets. Yadav argued that high frequency trading’s speed and automation threaten to undermine market transparency, efficiency, and fairness. Gelpern described how the law is used to create, label, and guarantee safe assets, financial contracts that are purportedly risk-free but that played a major role in the last financial crisis.
Michigan faculty, including Michael S. Barr and Daniel Halberstam from Michigan Law, Michael Wellman from Computer Science and Engineering, and Amiyatosh Purnanandam from the Ross School of Business, as well as Edwin M. Truman from the Peterson Institute for International Economics, provided comments on the papers. Several additional Michigan faculty provided informal feedback and participated in discussions throughout the day.
The presentations sparked robust discussions, which included debates over whether international financial regulation is moving in a more “hard law” direction, the need to increase democratic accountability in the EU’s financial regulatory system, and the tradeoffs involved in regulating high frequency trading and managing safe asset levels, among other topics. In all, the workshop provided the paper authors with valuable feedback and brought insights from a range of disciplines and perspectives to bear on some of the major questions in this fast-evolving area of law.