AALS sections provide opportunities for law school faculty and staff to connect on issues of shared interest. Each section is focused on a different academic discipline, affinity group, or administrative area. For a full list of sections and information on how to join, please visit www.aals.org/sections.
As part of the ongoing “Spotlight on Sections” series, AALS sat down with the leadership of the Section on Financial Regulation and the Section on Jurisprudence.
By Zaena Ballon
The AALS Section on Financial Regulation provides for the exchange of information among, and the professional development of, law school faculty members interested in and involved with the laws governing financial institutions and consumer financial services, including state and Federal regulation of financial institutions and the operation and development of payment systems.
Chair: David Zaring, University of Pennsylvania Carey Law School and The Wharton School of the University of Pennsylvania
Chair-Elect: Michael Malloy, University of the Pacific McGeorge School of Law
What made you get involved in the section on Financial Regulation and why did you decide to join its leadership team?
David Zaring: I think of the financial regulation section as a community of scholars; all members can lead it and serve as a resource for others, and everybody can take a turn in leadership. That’s what I wanted to do. I want to do a couple of things this year and otherwise keep the trains running on time: I want to do a syllabus exchange for people who want to check out other ways of organizing a financial regulation course, then hold a midyear conference in addition to our usual sessions at the annual meeting.
Michael Malloy: When I started teaching 40 years ago, there was no section on financial regulation. In fact, at that time, there were only a handful of schools that even offered a course specifically in this area, and most of those were advanced seminars.
Gradually, a group of us came together roughly 25 years ago and said we need more of an opportunity, more of a venue for exchange of ideas. To the extent that our area of the law has its own distinctive elements, there ought to be a way for us to interchange and interact on a regular basis, bring some attention and focus to this area. It was around this time that we created the section.
The idea was that this area of the law was, strangely enough, similar to courses in business associations. The typical course is about the full range of legal issues affecting a particular client, and how each area of the law affects financial institutions and those interacting with them. That requires a broad focus and detailed information about how this all comes about. How do you form one? Who manages it? What are its duties to the people it works with? How does it expand? Is it affected by antitrust? Can it commit torts? All these issues, which are normally separate courses in a law school, come together and bring us a very wide basket of problems that we try to get our students oriented towards, so that they have a sense of how effectively they can deal with these issues.
Since then, it’s been very exciting. The opportunity to interchange with more of our colleagues, especially in these rather exciting times, is a genuine pleasure and certainly a great benefit.
What is the section’s leadership structure?
DZ: We have a council of folks willing to serve as a sounding board for the section managers when they make proposals. [The managers] serve as the vice chair for one year and then chair the second year. They invite people on to the sounding board, and carry out most of the administrative duties of the section.
What kind of work do your members do? Is everyone in financial regulation law or is there anybody in a different expertise?
MM: It is a varying range of expertise. You’ll find among our members a wide variety of issues: those who are very interested in administrative/regulatory legal issues, those who are concerned with consumer protection, people who are interested in payment systems and the transactional level of financial services, among others. We intersect at financial regulation and policy, but we reach that intersection point from various directions, making it exciting. You begin to see areas you are interested in from a very different perspective. I learn something every time we meet.
DZ: It’s nice to see people with different perspectives being interested in financial institutions. I am one of the people who comes to financial regulation largely from administrative law perspective. I’ve also been interested in the internationalization of financial regulation, and there are some section members who take a global approach to the oversight of financial institutions. Then again, there’s a strong consumer protection focus, including some people who are interested in different kinds of financial institutions. Some people are interested in derivatives and other markets, other people in non-banks, the payday lenders and loan servicers, then some people in banks themselves. They have to deal with regulation in various and complicated ways.
How does your section support the scholarship of your members?
MM: Frequently at the AALS Annual Meeting, we will have a works-in-progress panel that’s intense and focused. Many of our relatively new members have an opportunity to take a piece that they are actively working on and have some interchange and feedback with some of our members who may have more experience in the area. It’s an opportunity to share your draft and bounce some ideas off other people. We also have this email chain, where we share ideas or draw attention to new scholarship related to the field. In a sense, our ongoing dialogue is part of how we support the scholarship of our members.
DZ: It’s nice to have a community of academics to share your papers with. The section is really designed to provide that kind of community, even though our members have built their own networks. Through the section, various networks can come together in a way that’s hopefully pro-social and scholarship-focused.
Every so often, we’re able to bring a regulator in to talk to the membership. It’s just nice to get the perspective of not only academics, but people dealing with the practical aspects of some of these issues. I hope we can also bring a regulator to our annual meeting next year.
The section recently changed its name from the section on Financial Institutions and Consumer Financial Services to the section on Financial Regulation. What were some of the reasons for that change?
DZ: The name change was largely led by Paolo Saguato (Antonin Scalia Law School at George Mason University), who thought that we didn’t need to suggest there are two kinds of financial regulation scholars: people who are interested in financial institutions and people who are interested in consumer protection. Financial regulation is a term that counts both consumer protection and financial institutions as worthy subjects of financial regulation. Therefore, the longer name was a bit duplicative.
At the AALS Annual Meeting, you held a program titled Financial Regulation in a Time of Global Uncertainty. What themes did the session address?
DZ: We chose that title because financial institutions have been through a lot in the past three or four years. There was the shock of the pandemic, and then inflation. It was time to take stock of these momentous changes, so we invited scholars to submit papers that could provide perspectives on the big changes happening in the financial sector and the broader economy.
The Federal Reserve is launching FedNow, an instant payment system, in the U.S. What kind of impact do you think this will have on electronic payment systems? Will it replace commonly used platforms?
MM: There’s a lot of hesitation about the possible impact. There are some commentators who’ve already expressed concern that the Fed’s involvement in the instant payment system could impede or make it more hesitant to do anything. That may, ironically enough, reenergize commonly used platforms as an alternative to it. The Fed itself, in response to those kinds of concerns, has said, “No, we’re just providing more flexibility and more economically efficient ways of moving payments. We don’t intend this as a regulatory device at all.” Though that may be true, watch out for the next crisis, where we might see some direct involvement. We have the Fed, which is the central bank, partly because it can monitor and regulate by being a major participant.
DZ: Some countries have had real-time payment systems in place for 50 years. The United States has one of the slowest payment systems in the world. It’s interesting to speculate why the Fed took so long to develop a rapid payment system through its FedNow process. There’s also a political economy story here: the private sector was developing its own real-time payment system that larger financial institutions owned. There was concern among the many smaller financial institutions that if these guys had a monopoly over the payment system, that could redound to the detriment of institutions that were on the outside. One thing that’s going on with FedNow is an effort to create a potential competitor and a diverse payment system, which hopefully will induce worthy competition in this space where the United States has been lagging for so long.
Critics point to the easing of the Dodd-Frank Act as a possible reason for the most recent bank failures, including Silicon Valley Bank. What are your thoughts on the move to roll back financial regulations and its impact on our banking system?
MM: When you look at the ways in which Dodd-Frank has been rolled back, particularly because of legislation during the Trump administration, it was very limited. Dodd-Frank was still there. Basic authority for regulatory agencies to monitor unsafe or unsound banking practices existed before Dodd-Frank and continued to exist. However, is it being used? I think some of the Fed’s comments in the aftermath of SVB and the other failures, admit that it should have been more proactive.
The problem with SVB is a very common bank failure story. When you get too concentrated, the risk of your limited clientele [if something goes wrong] becomes abruptly your risk. It was a bad way to conduct banking and the regulators should have been on them about that. And they weren’t.
If there is a way in which the roll-back of Dodd-Frank is involved here, it’s more in terms of attitudinal impact. Many regulators, particularly in the regional offices, are more hesitant to go after banks out of fear of being criticized for holding banks back from normal operations. That kind of reaction to perceptions means that we’re not doing enough of a job of monitoring how our financial system operates.
DZ: Even though the Fed had the tools to do this, Congress invited it to decrease the amount of supervision that it was affording banks the size of Silicon Valley Bank. SBV was clearly too big to fail, which is the usual monitor. We’ve got some banks that we just can’t afford to let fail because they’re so enormous, their disruption would cause a lot of consequences for the financial system. The thought was, maybe we only have four of those, or globally, maybe we only have seven or eight of those. Silicon Valley Bank was around the 15th largest bank in the country by the time it failed and should have been on that list. The Fed didn’t impose all the stress testing that perhaps it should have. The signs of what happened to Silicon Valley Bank were there for all to see, and it is concerning that the regulators didn’t pick up on those signs.
Do you see more attempts to regulate cryptocurrency in the future?
MM: Well, we have one on the table right now. The Fed announced in a policy statement that it would not allow Fed member banks that are state-chartered to be principals of cryptocurrency. In other words, they cannot be actively involved in the purchase and transactions of cryptocurrency, unless it was allowed for national banks to do so. The implication is that it is very limited and therefore we should be able to calm down any bank involvement in the cryptocurrency market. It’s a negative regulation, it keeps them pulled back.
What is interesting about this is until about six months ago, the big debate was about how we are going to regulate cryptocurrencies. What laws should apply to them? Are they money? Are they securities? Are they contracts? Are they this? Are they that? As we struggled with those issues, nobody came forth with a single generally accepted view of how we ought to look at cryptocurrency.
The Fed’s new statement takes a very different approach to this. Instead of focusing on what cryptocurrency is and how it should be regulated, they’re saying, who are the people we’re worried about, and how should they be regulated? I think that may turn out to be a more interesting approach to this problem.
DZ: There was a lot of interest in Congress before the collapse of FTX, the cryptocurrency exchange run by Sam Bankman-Fried, maybe seeing if they could develop a broad regulatory regime for crypto. I think much of that appetite has receded due to the real problems in the cryptocurrency space.
Some people think it’s possible for consensus legislation to be passed on the regulation of stable coins, which is how cryptocurrency speculators do their banking in their currency exchanges. Possibly there’ll be room for some legislation in that space, which would be the start of Congress taking a role in cryptocurrency. But we live in an age of divided government. There’s just been crypto winter, it is still ongoing. What that means is we’ll see a few more efforts by states to stake out regulatory regimes that are somewhat crypto-friendly, but it’ll remain to be seen exactly how those work and whether they get to join the Fed’s payment system and stuff like that.
What are some important conversations happening right now in legal education regarding financial regulation?
DZ: There’s been some focus on international financial regulation, this global regime most banks must adhere to. It is being developed completely informally by regulators rather than diplomats and negotiating treaties. There’s a lot of interest in how that regime works. Professors, including me, are trying to develop classes that expose students to that space. There’s been a lot of innovation in the consumer protection side of financial regulation. The fact that the Consumer Financial Protection Bureau (CFPB) has only been around since the passage of Dodd-Frank means that there is a new agency creating a lot of law and people want to understand what it means for financial marketplace actors and how it’s doing as a consumer protection agency. I think financial institutions classes take the CFPB and consumer protection more seriously into account, so those are two developments in legal education.
I’ll also say that people are talking a lot more about financial crises, given that we had a big one in 2008 and another in 2020 with COVID. Europe had one in 2011 and 2012. This year, we’ve seen some relatively large American banks collapse. That kind of emergency aspect of financial regulation is also top of mind for several legal academics.
MM: One of the things we are looking at is how you stack these areas of interest. What courses should we have and how specific or specialized should they be? When I started, there was a banking law course, but it wasn’t about payment systems, it was about bank regulation. I added a course in international banking, which was more about international financial services. It noticed some of the things that David highlighted, particularly the informal international system of regulation we have running. This brought up the question of is there a broader range of courses we should have?
Academics typically don’t think about what kind of prerequisites or co-requisites ought to come into play until they’re already well on the way to adopting a new course. Can you send a student to a financial regulation course without any background in administrative law? My response to that is, can you send a student into administrative law without any background in financial regulation? Many of the cases discussed or focused upon in administrative law come from the financial regulation field. I’m a big believer in co-requisites. I don’t want to exclude someone because they didn’t do it in the order I want, but I think people should know that there is overlap and intersection.
I’ve told students who came to me looking for advice about what courses to take, that they should be aware that some of these areas, even though they might focus on financial regulation or consumer protection, allow them to pick up some fundamental lawyering skills. Even the ability to bring together various types of issues on the same legal question is an essential legal skill. Young lawyers often don’t encounter it until they’re already sitting there with this big stack of documents. Maybe that’s something we should give them more background in and more opportunities to develop those skills. Some of these courses defy the traditional separation of a lecture course versus a skills course. We are actively teaching analytical and representational skills that are a natural part of this area of the law.
What are the best ways for interested faculty to get involved with the section?
DZ: I would say just reach out to Michael or me. We’d be delighted to get people involved in any way they want to participate. We’re an informal group, so there’s no reason for anyone to shy away from getting in touch. We love to have active and interested section members and anyone who wants to play any role should not hesitate to contact us.
MM: I agree wholeheartedly. Any faculty member with even a passing interest in this area should feel free to let their voice be heard. We’ll all learn something from that.
What is your vision for the section this year and in the years to come? What new initiative, project based or ongoing, would you like to see as part of the section?
DZ: I think a mid-year scholarly meeting as well as hosting a session at the Annual Meeting is a good idea. I also want the section to host a syllabus exchange so that people who want to think about what’s in and out of their course could take a look at different syllabi and different textbooks and casebooks. If I make progress on those two fronts, I’ll be happy.
MM: I would like to make sure that we not only launch the initiatives that David just talked about, but also sustain them and keep them moving forward over time. It’s not just a one-off thing where you get it out the door and you say, “that’s done.”
I’d also like to look at more opportunities, even if they’re just informal, to get group publications out there. A semi-annual meeting might be a good opportunity to draw together some pieces on a particular topic and get it published as a symposium issue of a law review. Whatever the next crisis is on the horizon, we’ll build a program around that.
Is there anything else you would like to add?
DZ: It’s really been a pleasure to be a part of this section which is quite supportive of faculty. I also appreciate the fact that I’ve been able to participate in the AALS process more generally, given that I don’t teach at a law school, I teach at a business school. I really am glad that the section has been welcoming to scholars with somewhat non-traditional approaches.
MM: I think this section has its own internal enthusiasm; people meeting with people. We just are so very excited about it. This is still a relatively new area in law school curriculums. More than half of law schools now have basic courses in this area, but it’s still growing. The people who tend to come to our sessions, formal or informal, are there because they have a very active interest in pursuing this. It’s not just a course that’s been assigned to them. Hats off to the AALS for giving us the venue to pursue this.