Document Type
Article
Publication Date
2023
Publication Information
49 J. Corp. L. 1 (2023).
Abstract
From the Article
The Article first shows that the innovative design of securitization vehicles is to give banking entities exposure to residual and subordinated parts of these vehicle’s capital stacks without triggering a legal conclusion that the vehicles are bank “affiliates” or “investment companies,” thus avoiding regulation under the banking laws and investment company laws. The Article then applies this transactional-based analytical framework to the 2007-09 financial crisis. It presents data showing how the traditional banking sector owned, controlled, and backstopped many of the securitization vehicles at the heart of the crisis.
The Article argues for updating the boundary lines between banking entities, regulated investment companies, and unregulated investment companies. The banking laws should add an economic exposure test to the definition of “affiliate” to bring unregulated entities backstopped by banks, and indirectly backstopped by the federal safety net, into the regulatory perimeter. Moreover, the exemptions from the Investment Company Act of 1940 for certain investment companies that hold only certain types of assets should be narrowed or eliminated altogether. This bottom-up, transactional approach would better regulate risks to investors and the public than the top-down approach in the Dodd-Frank Act that relies on regulators identifying and regulating “systemically important” nonbanks.
Recommended Citation
Patrick M. Corrigan,
Shining a Light on Shadow Banks,
49 J. Corp. L. 1 (2023)..
Available at:
https://scholarship.law.nd.edu/law_faculty_scholarship/1707