Table of Contents

Security Recommendations and the Liabilities of Broker-Dealers

Matthew Kozora, Division of Economic and Risk Analysis, U.S. Securities and Exchange Commission

Regulating Forced Arbitration in Consumer Financial Services: Re-Opening the Courthouse Doors to Victimized Consumers

Martha T. McCluskey, SUNY Buffalo Law School
Thomas Owen McGarity, University of Texas at Austin - School of Law
Sidney A. Shapiro, Wake Forest University School of Law
James Goodwin, Center for Progressive Reform
Mollie Rosenzweig, Center for Progressive Reform

Who Benefits from Tax Expenditures? Incidence Based on Wealth

Kyle Rozema, Northwestern University - Pritzker School of Law

Influence of Bank-Specific and Macroeconomic Variables on Credit Risk: A Case of Nepalese Commercial Banks

Radhe Shyam Pradhan, Uniglobe College, Central Dept. of Management, Tribhuvan University
Binay Bam, Independent


REGULATION OF FINANCIAL INSTITUTIONS eJOURNAL

"Security Recommendations and the Liabilities of Broker-Dealers" Free Download

MATTHEW KOZORA, Division of Economic and Risk Analysis, U.S. Securities and Exchange Commission
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I investigate the liabilities of broker-dealers from the arbitration of investor claims relating to security recommendations. I find that investor awards are more positive for claims involving securities that are more difficult to evaluate, and that the more positive awards relate to investor assertions of a fiduciary duty violation and to investor assertions of a suitability violation. I also find that the length of the arbitration, a measure of the cost of arbitration and a proxy for the potential difficulty of the two parties to directly settle the dispute, are greater for these claims. Overall, the results indicate that broker-dealers can have additional liabilities when recommending securities that are more difficult to evaluate. The results illustrate the importance of the applicable laws, including arbitration as a forum for dispute resolution, as a determinant of the liabilities or potential costs of broker-dealers to provide security recommendations.

"Regulating Forced Arbitration in Consumer Financial Services: Re-Opening the Courthouse Doors to Victimized Consumers" Free Download

MARTHA T. MCCLUSKEY, SUNY Buffalo Law School
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THOMAS OWEN MCGARITY, University of Texas at Austin - School of Law
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SIDNEY A. SHAPIRO, Wake Forest University School of Law
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JAMES GOODWIN, Center for Progressive Reform
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MOLLIE ROSENZWEIG, Center for Progressive Reform

Forced arbitration clauses have become almost unavoidable in contracts for financial services and products ranging form credit cards to private student loans. This report examines how the financial services industry uses these clauses to defeat consumers' rights and evade accountability for their wrongdoing.

As the report explains, the forced arbitration process harms consumers by relegating them from the civil justice system to an inferior forum for vindicating their rights. In contrast to the courts, forced arbitration tends to be secretive, less independent of industry, more prone to erroneous and arbitrary rulings, more likely to discourage the pursuit of claims with procedural barriers, and more likely to provide inadequate relief for compensating victims of corporate wrongdoing.

The report examines the 2016 proposal by the Consumer Financial Protection Bureau (CFPB) to limit the use of forced arbitration clauses in contracts for financial services and products, and finds that the proposal is consistent with the agency's statutory obligation to protect consumers. The report goes on to explain that the CFPB would better fulfill its statutory mandate by revising its proposal to include stronger protections for consumers.

"Who Benefits from Tax Expenditures? Incidence Based on Wealth" Free Download

KYLE ROZEMA, Northwestern University - Pritzker School of Law
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Who benefits from tax expenditures? Prior research has focused on the extent to which tax expenditures are income-regressive, without regard to household wealth. I investigate whether the mortgage interest deduction is wealth-regressive. Using detailed information on income and wealth from the Survey of Consumer Finances, I find that tax breaks from the mortgage interest deduction are increasing in wealth for the wealthiest 10% of households. Combined with the evidence that the mortgage interest deduction is income-regressive, the findings provide evidence that it is more regressive than previously thought.

"Influence of Bank-Specific and Macroeconomic Variables on Credit Risk: A Case of Nepalese Commercial Banks" Free Download

RADHE SHYAM PRADHAN, Uniglobe College, Central Dept. of Management, Tribhuvan University
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BINAY BAM, Independent
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Commercial banks are the major sources of credit for business firms and households in many countries. Better performance of these financial institutions play a significant role for the economic prosperity of any country and poor performance of these institutions result the slowdown of economic growth and affects badly to the region of the world. The main objective of this study is to examine the influence of bank-specific and macroeconomic variables on credit risk in context of Nepalese commercial banks. The study is based on panel data analysis of the secondary data of 15 commercial banks with 150 observations for the period 2004 to 2013. As a first approximation to the theory, this study hypothesizes that the credit risk of the banks depends on several bank specific and macroeconomic variables such as bank size, credit to deposit ratio, capital adequacy ratio, gross domestic product growth rate, unemployment rate and inflation rate. The study revealed that average nonperforming loan total loan was 7.38 percent while provision for loan loss to total loan was 2.04 percent. The beta coefficient for capital adequacy, unemployment and inflation rate are negatively significant with nonperforming loan. Similarly, bank size, capital adequacy ratio and gross domestic product growth rate are negatively significant with provision for loan loss to total loan. However, the coefficient for credit to deposit is positively significant with provision for loan loss to total loan. Thus, this study concludes that capital adequacy ratio is major determinant of credit risk in context of Nepalese commercial banks.

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This eJournal distributes working and accepted paper abstracts covering regulatory and legal aspects of national and international financial institutions. The eJournal welcomes research that deals with legal aspects of depository institutions including banks, credit unions, trust companies, and mortgage loan companies. Topics also include regulation of insurance companies, brokers, underwriters, and investment funds.

Editors: G. William Schwert, University of Rochester, and Rene M. Stulz, Ohio State University (OSU)

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BANKING & FINANCIAL INSTITUTIONS EJOURNALS

MICHAEL C. JENSEN
Social Science Electronic Publishing (SSEP), Inc., Harvard Business School, National Bureau of Economic Research (NBER), European Corporate Governance Institute (ECGI)
Email: michael_jensen@ssrn.com

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Advisory Board

Regulation of Financial Institutions eJournal

EDWARD I. ALTMAN
Senior Advisor, Credit and Debt Markets Research Program, New York University (NYU) - Salomon Center, Max L. Heine Emeritus Professor of Finance, New York University (NYU) - Department of Finance

DENNIS R. CAPOZZA
Professor Emeritus, Ross School of Business, University of Michigan

DONALD CHEW
Morgan Stanley Investment Management

J. DAVID CUMMINS
Joseph E. Boettner Professor, Temple University - Risk Management & Insurance & Actuarial Science

DOUGLAS W. DIAMOND
Merton H. Miller Distinguished Service Professor of Finance, University of Chicago - Booth School of Business, National Bureau of Economic Research (NBER)

EUGENE F. FAMA
Robert R. McCormick Distinguished Service Professor of Finance, University of Chicago - Finance

STEPHEN FIGLEWSKI
Professor of Finance, New York University - Stern School of Business

STUART I. GREENBAUM
Bank of America Professor of Managerial Leadership, Washington University in St. Louis - Olin Business School

MICHAEL C. JENSEN
Co-Founder, Chairman, Managing Director and Integrity Officer, Social Science Electronic Publishing (SSEP), Inc., Jesse Isidor Straus Professor of Business Administration, Emeritus, Harvard Business School, Research Associate, National Bureau of Economic Research (NBER), Fellow, European Corporate Governance Institute (ECGI)

JONATHAN M. KARPOFF
Washington Mutual Endowed Chair in Innovation Professor of Finance, University of Washington - Michael G. Foster School of Business

KENNETH LEHN
Professor of Business Administration, University of Pittsburgh - Finance Group

STANLEY R. PLISKA
University of Illinois at Chicago - Department of Finance

CHARLES I. PLOSSER
President, Federal Reserve Bank of Philadelphia, National Bureau of Economic Research (NBER)

KATHERINE SCHIPPER
Duke University - Fuqua School of Business

ALAN SCHWARTZ
Sterling Professor of Law, Yale Law School

G. WILLIAM SCHWERT
Distinguished University Professor of Finance and Statistics, University of Rochester - Simon Business School, National Bureau of Economic Research (NBER)

RENE M. STULZ
Everett D. Reese Chair of Banking and Monetary Economics, Ohio State University (OSU) - Department of Finance, National Bureau of Economic Research (NBER), Fellow, European Corporate Governance Institute (ECGI)

ROSS L. WATTS
Erwin H. Schell Professor of Management, Massachusetts Institute of Technology (MIT) - Sloan School of Management