The financial crisis of 2008 was the result of developments in the financial system during the first decade of the 21rst Century which the regulatory system had failed to keep pace with. The government's immediate response to the crisis, however, drew upon emergency powers that were first created by Congress in 1913 and 1934 in response to the Panic of 1907 and the Great Depression that began in 1929. Like those crises, this crisis also generated a major piece of financial reform legislation, Dodd-Frank, which has altered the regulatory playing field on which financial institutions will operate in the future. Whether the Dodd-Frank reforms adequately address the causes of the most recent crisis and will prevent the onset of another crisis remains an open question and one which this course will examine.
In order to give students the ability to evaluate the merits of the Dodd-Frank legislation, this course will review the historical development of the United States banking industry, and of the regulatory structure governing it, so as to give students an appreciation of the political and economic forces that have produced a financial and regulatory system as complex as the one Dodd-Frank seeks to reform. Topics covered will include the role of the Federal Reserve Bank, the role of the Federal Deposit Insurance Corporation, safety and soundness regulation, bank activity limitations, consumer protection, bank insolvency and resolution and banks' ability to affiliate with other financial institutions such as insurance companies and investment banks.
Students will be evaluated on the basis of class participation (15% of the grade) and problem sets handed out during the course of the semester (15% of the grade) and a final examination (70% of the grade). The final examination will focus on traditional "issue spotting" to test the acquisition of basic concepts as well as on the comprehension of the historical material included as part of the readings. The problem sets, which will call for policy analysis as well as legal analysis, will help students internalize the material and prepare for the final examination.