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Financial Regulation

Course Number:



Chester Spatt,




Finance, Economics, Business Ethics

Course Description

The aftermath of the financial crisis has emphasized the importance of regulation for our financial system, leading to restructuring of our system of financial intermediaries and basic challenges confronting the management of these institutions. The new attention to systemic risk and sovereign credit worthiness is reflective of broad changes to our environment.

The course will emphasize the organization of our financial system, highlighting the types of decisions made by consumers and investors and the delegation of these decisions through financial intermediaries. After an overview of the bases for financial regulation and conflicts among different types of regulators, we will discuss the business models underlying different types of asset management endeavors—such as mutual funds, hedge funds and institutional asset managers and the connections among clients, banks, brokerage services and portfolio management activities in a market context. Among the array of relevant parties and support services are investment bankers, analysts, auditors, credit-rating agencies, proxy voting advisers, transfer agents, clearing entities and trading exchanges and dealers. We will discuss the types of regulatory challenges and economic issues facing these types of entities and their respective roles in the financial system. Many of the regulatory issues revolve around conflicts in the goals of various market participants. This will help frame much of our discussion of alternative fee models for information provision in asset management and financial services more broadly and the types of conflicts of interest that financial intermediaries do face.

We will address the regulatory framework for securities in the United States, highlighting the role of disclosure regulation generally, insider trading and antifraud rules, and the regulation of trading processes and asset-management intermediaries. Some important aspects of the U.S. regulatory system in recent years have been its reliance upon self-regulatory organizations and corporate governance as well as the greater emphasis globally on regulatory coordination and competition. The Dodd-Frank Act will offer a useful lens for understanding recent regulatory responses and anticipated regulatory actions and perspectives on such issues as clearing and derivatives, credit-rating agencies and the “Volcker Rule” governing proprietary trading by bank and systemically important institutions.  The role for our financial system of the nature of liquidity and illiquidity, counter-party and systemic risk and the capital structure of intermediaries also will be emphasized.

The course will indirectly offer an incentives-oriented perspective for understanding the role of ethical behavior and the importance of effective due diligence and will consider the incentives of regulators and the political economy underlying regulation.

Because the course will address relatively contemporary regulatory matters, the course will include regular brief discussions of current developments. In addition to a final exam and a few problem sets, the course requirements also will include a group presentation about a regulatory issue.

Chester Spatt; Revised March 2012


Lecture: 100min/wk and Recitation: 50min/wk