Towards a Legal Theory of Finance

58 Pages Posted: 19 Nov 2012 Last revised: 28 Feb 2014

See all articles by Katharina Pistor

Katharina Pistor

Columbia University School of Law

Multiple version iconThere are 3 versions of this paper

Date Written: November 18, 2012


This paper develops the building blocks for a legal theory of finance. LTF holds that financial markets are legally constructed and as such occupy an essentially hybrid place between state and market, public and private. At the same time, financial markets exhibit dynamics that frequently put them in direct tension with commitments enshrined in law or contracts. This is the case especially in times of financial crises when the full enforcement of legal commitments would result in the self-destruction of the financial system. This law-finance paradox tends to be resolved by suspending the full force of law where the survival of the system is at stake; that is, at its core. Here, power becomes salient. This helps explain why finance is concentrated around ultimate lenders of last resort and why regulating finance’s core has become so elusive. It also holds lessons for future reforms.

JEL Classification: F5, G01, G2, K0, K22, N20, P1

Suggested Citation

Pistor, Katharina, Towards a Legal Theory of Finance (November 18, 2012). ECGI - Law Working Paper No. 196, Columbia Law and Economics Working Paper No. 434, Available at SSRN:

Katharina Pistor (Contact Author)

Columbia University School of Law ( email )

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