scholarly journals Are Bank Fiduciaries Special?

2017 ◽  
Author(s):  
Robert C. Hockett
Keyword(s):  
Collective Action ◽  
Financial Institutions ◽  
Financial Crises ◽  
Financial Regulation ◽  
Banking Regulation ◽  
Fiduciary Duty ◽  
Individual Rationality ◽  
Fiduciary Duties ◽  
Collective Action Problems ◽  
Argument Proceeds

A growing body of post-crisis legal and economic literature suggests that future financial crises might be averted by tinkering with the internal governance structures of banks and other financial institutions. In particular, contributors to this literature propose tightening the fiduciary duties under which officers and directors of the relevant financial institutions labor. I argue in this symposium article that such proposals are doomed to failure under all circumstances save one - namely, that under which the relevant financial institutions are in whole or in part treated as publicly owned.The argument proceeds in two parts. I first show that the financial dysfunctions that culminate in financial crises are not primarily the products of defects in individual rationality or morality, ubiquitous as such defects of course always are. Rather, I argue, fragility in the financial markets stems from what I elsewhere dub recursive collective action problems, pursuant to which multiple acts of individual rationality aggregate into instances of collective calamity. This form of vulnerability is endemic to banking and financial markets.I next show that the best understanding of fiduciary obligation is that pursuant to which she who is subject to the obligation minimizes the 'space,' or separateness, that subsists between her and the beneficiary of her obligation. Ideal fiduciaries, in other words, stand-in for those to whom they are fiduciaries, while legal allowances for departure from this exacting ideal amount to pragmatic compromises we make with the brute fact of fiduciaries' being separate persons with interests of their own.It follows from these two lines of argument that merely tightening fiduciary duties back up in the case of financial fiduciaries will be no help at all if our object is to address financial fragility. It will simply ensure that fiduciaries behave more as their beneficiaries would behave - beneficiaries whose individually rational behavior is precisely the problem where markets beset by recursive collective action problems are concerned.Because the only way to solve a collective action problem is through collective agency, the only way to fashion a 'fiduciary fix' to financial dysfunction is to reconceive financial fiduciaries as collective agents, not individual agents. And that is to reconceive financial institutions as public institutions.Keywords: Banks, Banking, Banking Regulation, Collective Action Problems, Fiduciaries, Fiduciary Duty, Fiduciary Duties, Fiduciary Obligation, Finance, Financial Institutions, Financial Regulation, Public Ownership, Recursive Collective Action Problems

Corporate Fiduciary Duties and Prudential Regulation of Financial Institutions

2015 ◽  
Vol 16 (1) ◽  
Author(s):  
Edward M. Iacobucci
Keyword(s):  
Supreme Court ◽  
Financial Institutions ◽  
Financial Regulation ◽  
Fiduciary Duty ◽  
Court Cases ◽  
Fiduciary Duties ◽  
The Supreme Court ◽  
Recent Developments ◽  
Clear Statement ◽  
Fiduciary Liability

AbstractWhile corporate fiduciary duties in many jurisdictions are generally understood to be owed to shareholders, recent Canadian Supreme Court cases have held that directors owe their duties to the corporation, period, not to shareholders or any other stakeholders. This development has introduced significant indeterminacy to the law since it is not clear what such a conception of the duty requires. The Supreme Court did, however, make one clear statement: it held that directors owe a fiduciary duty to ensure that their corporations obey statutory law. Such a duty encourages compliance with law, but may over-encourage compliance: individual directors do not necessarily gain personally from legal breaches, but may lose personally from them because of fiduciary liability, so they will have excessively strong incentives to avoid such breaches. The Article connects the fiduciary duty to obey law with recent developments in financial regulation that have increased the obligations on directors of financial institutions to oversee risk. By requiring directors to be engaged with risk at a governance level, regulators have enhanced the probability that directors will face liability under their fiduciary duties if their institutions do not comply with financial regulations. As the Article explains, the policy tradeoff between enhanced compliance benefits and over-compliance costs of fiduciary liability is different in the context of financial regulation from that in other settings. For example, significant corporate penalties, as opposed to penalties borne by individual directors, may be inconsistent with the prudential goals of regulation, perhaps because of toobig- to-fail concerns. The fiduciary duty to cause the corporation to obey financial regulation, and a stricter application of this duty than the highly deferential standard that exists in Delaware law, has advantages that do not exist in other legal and regulatory contexts.

Vertical and Horizontal Problems in Financial Regulation and Corporate Governance

2018 ◽  
Author(s):  
Jonathan R. Macey ◽  
Maureen O'Hara
Keyword(s):  
Corporate Governance ◽  
Financial Institutions ◽  
Insider Trading ◽  
Financial Regulation ◽  
Fiduciary Duty ◽  
Federal Law ◽  
Regulatory Arbitrage ◽  
Holding Companies ◽  
The Third ◽  
And Control

This chapter discusses vertical and horizontal problems in financial regulation and corporate governance. More specifically, it examines three contexts in which efforts to mitigate systemic risk and moral hazard in capital markets and financial institutions clash with long-standing principles of corporate governance. The first issue relates to the so-called “vertical” challenge between financial institutions and the separately incorporated holding companies that own and control them. The second issue relates to the “horizontal” challenge, in which regulatory arbitrage occurs between the banking subsidiaries of complex holding companies and their less-regulated nonbank and shadow bank siblings. The third and final issue deals with the conflict between the conception of fiduciary duty in the federal law of insider trading and the concept of fiduciary duty in state law.

Financial Regulation

2011 ◽  
Vol 216 ◽  
pp. F4-F9 ◽  
Author(s):  
Ray Barrell ◽  
E. Phillip Davies
Keyword(s):  
Risk Taking ◽  
Financial Crises ◽  
Financial Regulation ◽  
Banking Regulation ◽  
Committee Report ◽  
Costs And Benefits ◽  
Basel Committee ◽  
The Core ◽  
The World ◽  
The Relationship

The financial crisis that engulfed the world in 2007 and 2008 has led to a wave of re-regulation and discussion of further regulation that has culminated in the proposals from the Basel Committee as well as those in the Vickers Committee report on Banking Regulation and Financial Crises. This issue of the Review contains a number of papers on Banking Regulation, covering many aspects of the debate, and we can put that debate in perspective through these papers and also by discussing our work on the relationship between bank size and risk taking, which is reported in Barrell et al. (2011). We addressed the causes of the crisis in the October 2008 Review, and began to look at the costs and benefits of bank regulation in Barrell et al. (2009). In that paper we argued that we needed to know the causes of crises and whether the regulators could do anything to affect them before we discussed new regulations. It is now generally agreed that increasing core capital reduces the probability of a crisis occurring, and most changes in regulation that are being discussed see this as the core of their toolkit. The work by the Institute macro team in Barrell et al. (2009) and in Barrell, Davis, Karim and Liadze (2010) was the first to demonstrate that there was a statistically important role for capital in defending against the probability of a crisis occurring, and our findings were widely used in the policy community in the debate over reform.

Financial Regulation: Lessons from the Recent Financial Crises

2011 ◽  
Vol 49 (1) ◽  
pp. 120-128 ◽  
Author(s):  
Takeo Hoshi
Keyword(s):  
United States ◽  
Financial Institutions ◽  
Financial Crises ◽  
Financial Regulation ◽  
Financial System ◽  
The United States ◽  
Regulatory Framework ◽  
Policy Recommendations ◽  
Financial Regulations

The experiences of the financial crises in the United States recently and in Japan in the 1990s suggest two lessons for future financial regulations. First, the lack of an orderly resolution mechanism for large and complex financial institutions created serious problems. Second, it is important to distinguish between individual financial institutions' health and stability of the whole financial system. Policy recommendations in the Squam Lake Report address these issues well. The Dodd–Frank Act could provide an effective regulatory framework to implement these recommendations, but the success depends on the details of the regulations that have not been specified. (JEL E44, E52, G01, G21, G28, L51)

Basel III: In quest for criteria and scenarios of the banking regulation reform advancement

2016 ◽  
pp. 77-93 ◽  
Author(s):  
E. Dzhagityan
Keyword(s):  
Financial Regulation ◽  
Cost Optimization ◽  
Spillover Effect ◽  
Regulatory Reform ◽  
Banking Regulation ◽  
Capital Adequacy ◽  
Basel Iii ◽  
Eurasian Economic Union ◽  
Downward Pressure ◽  
Crisis Recovery

The article looks into the spillover effect of the sweeping overhaul of financial regulation, also known as Basel III, for credit institutions. We found that new standards of capital adequacy will inevitably put downward pressure on ROE that in turn will further diminish post-crisis recovery of the banking industry. Under these circumstances, resilience of systemically important banks could be maintained through cost optimization, repricing, and return to homogeneity of their operating models, while application of macroprudential regulation by embedding it into new regulatory paradigm would minimize the effect of risk multiplication at micro level. Based on the research we develop recommendations for financial regulatory reform in Russia and for shaping integrated banking regulation in the Eurasian Economic Union (EAEU).

Islamic Banking Regulations in Light of Basel II

2010 ◽  
Vol 27 (1) ◽  
pp. 74-101 ◽  
Author(s):  
M. Kabir Hassan ◽  
Muhammad Abdul Mannan Chowdhury
Keyword(s):  
Financial Institutions ◽  
Banking Regulation ◽  
Capital Requirements ◽  
Basel Ii ◽  
Capital Adequacy ◽  
Regulatory Agencies ◽  
Islamic Banking ◽  
Islamic Banks ◽  
Minimum Capital ◽  
Regulatory Standards

This paper seeks to determine whether the existing regulatory standards and supervisory framework are adequate to ensure the viability, strength, and continued expansion of Islamic financial institutions. The reemergence of Islamic banking and the attention given to it by regulators around the globe as to the implications of a recently issued Basel II banking regulation makes this article timely. The Basel II framework, which is based on minimum capital requirements, a supervisory review process, and the effective use of market discipline, aligns capital adequacy with banking risks and provides an incentive for financial institutions to enhance risk management and their system of internal controls. Like conventional banks, Islamic banks operate under different regulatory regimes. The still diverse views held by the regulatory agencies of different countries on Islamic banking and finance operations make it harder to assess the overall performance of international Islamic banks. In light of the increased financial innovation and diversity of instruments offered in Islamic finance, the need to improve the transparency of bank operations is particularly relevant for Islamic banks. While product diversity is important in maintaining their competitiveness, it also requires increased transparency and disclosure to improve the understanding of markets and regulatory agencies. The governance of Islamic banks is made even more complex by the need for these banks to meet a set of ethical and financial standards defined by the Shari`ah and the nature of the financial contracts banks use to mobilize deposits. Effective transparency in this area will greatly enhance their credibility and reinforce their depositors and investors’ level of confidence.

Arena Expansion and the Transnationalization of Business Advocacy

2018 ◽  
Author(s):  
Abraham L. Newman ◽  
Elliot Posner
Keyword(s):  
Internal Structure ◽  
International Finance ◽  
Financial Regulation ◽  
Banking Regulation ◽  
Great Powers ◽  
Soft Law ◽  
Financial Industry ◽  
Individual Industry ◽  
Industry Associations

Chapter 5 shifts the focus from soft law’s effects on great powers to its impact on influential business groups. It argues that by expanding arenas of contestation to the transnational level, soft law transforms business representation as well as individual industry associations. The chapter’s empirical focus is on banking regulation from the 1980s to the 2000s. Much of the literature on transnational banking standards centers on the role of industry associations and, in particular, on the Institute of International Finance. In this chapter, the authors explain the rise of direct industry participation in and influence over Basel-based standard setting. They show that the orientation and priorities of the IIF as well as its membership and internal structure were deeply conditioned by 1980s international soft law. The IIF’s transformation subsequently set off a series of changes to the ecology of financial industry associations and the politics of financial regulation.

Fiduciary Principles in Investment Advice

2019 ◽  
pp. 144-165
Author(s):  
Arthur B. Laby
Keyword(s):  
Fiduciary Duty ◽  
Duty Of Care ◽  
Complex Nature ◽  
State Law ◽  
Fiduciary Duties ◽  
Legal Obligations ◽  
Standards Of Conduct ◽  
Investment Advisers ◽  
Definition Of ◽  
Investment Advice

This chapter examines the fiduciary principles governing investment advice. Fiduciary principles in investment advice are both straightforward and complex. They are straightforward because most investment advisers are considered fiduciaries and subject to strict fiduciary duties under federal and state law. Their complex nature arises from the fact that many individuals and firms provide investment advice but are not deemed investment advisers and, therefore, are not subject to a fiduciary obligation. This chapter first explains whether and when an advisory relationship gives rise to fiduciary duties by focusing on both federal and state law, as well as the individuals and firms that typically provide investment advice. In particular, it looks at certain persons and entities excluded from the definition of investment adviser and thus not subject to the Investment Advisers Act of 1940, namely broker-dealers, banks, and family offices as well as accountants, lawyers, teachers, and engineers. The chapter also considers fiduciaries under ERISA, the Investment Company Act, and the Commodity Exchange Act before discussing the fiduciary duty of loyalty and how it is expressed and applied in investment advisory relationships; the fiduciary duty of care and how it differs from other standards of conduct, such as a duty of suitability; and other legal obligations imposed on investment advisers and how those obligations relate to an adviser’s fiduciary duty. Finally, the mandatory or default terms with regard to an investment adviser’s fiduciary duties are explored, along with remedies available for breach of fiduciary duty.

Fiduciary Principles in Corporate Law

2019 ◽  
pp. 60-78
Author(s):  
Julian Velasco
Keyword(s):  
Voting Rights ◽  
Corporate Law ◽  
Fiduciary Duty ◽  
Duty Of Care ◽  
Profit Motive ◽  
Fiduciary Duties ◽  
Common Misconception ◽  
Strict Enforcement ◽  
Default Rules ◽  
Moral Requirements

This chapter examines fiduciary duty in corporate law. Fiduciary duty is pervasive as well as all encompassing in corporate law. One common misconception about fiduciary duty in corporate law is that it is merely aspirational. Fiduciary duties are not simply moral requirements, they are legal ones. They are not merely suggestions, they represent the demands of the law. Although corporate law has often compromised rather than insisting upon strict enforcement of fiduciary law principles, these compromises are due to practical considerations that are entirely consistent with the goals of fiduciary law. In corporate law, general fiduciary law principles are balanced with practical considerations concerning the profit motive in order to achieve the best overall result for the shareholders. Understanding this tension between ambition and practicality is key to understanding fiduciary duty in corporate law. This chapter first considers the triggers for fiduciary duty in corporate law before discussing the role that the duty of loyalty plays in corporate law. It then explores the duty of care in corporate law, along with other fiduciary duties such as good faith, takeover situations and contests for control, shareholder voting rights, and the duty to monitor and the duty to disclose. The chapter proceeds by analyzing mandatory and default rules regarding the extent to which fiduciary duties can be waived in corporate law and concludes with an overview of remedies for breach of fiduciary duty.

Sign in / Sign up

Export Citation Format

Share Document