The global financial crisis of 2008 was the result of developments in the financial system during the first decade of the 21st 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, the Dodd-Frank Wall Street Reform and Consumer Protection Act, which has altered the regulatory playing field on which financial institutions will operate in the future.
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 economic and political forces that have shaped the regulation of our financial system. This will include reviewing past financial crises and the responses to them, including the development of the Federal Reserve System, deposit insurance and other major reforms. The course will then focus on the forces that produced a financial and regulatory system as complex as the one that led to the 2008 global financial crisis and that Dodd-Frank seeks to reform. This will include examining the rise of the shadow banking industry and the growth of derivatives, and the causes of and responses to the 2008 crisis, including the role of individual accountability for behavior that contributed to the crisis.
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. The course will also consider the financial stability implications of post-crisis developments such as cryptocurrencies and fintech. The course will emphasize understanding the broader forces that have shaped regulation of our financial sector rather than the specifics of the regulations themselves.
Students will be evaluated on the basis of class participation (15% of the grade), a short paper 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 short paper, which will call for policy analysis as well as legal analysis, will help students internalize the material and prepare for the final examination