Regulating Ex Post: How Law Can Address the Inevitability of Financial Failure

57 Pages Posted: 30 May 2013 Last revised: 28 Dec 2014

Iman Anabtawi

University of California, Los Angeles (UCLA) - School of Law

Steven L. Schwarcz

Duke University School of Law

Date Written: November 18, 2013

Abstract

Unlike many other areas of regulation, financial regulation operates in the context of a complex interdependent system. The interconnections among firms, markets, and legal rules have implications for financial regulatory policy, especially the choice between ex ante regulation aimed at preventing financial failure and ex post regulation aimed at responding to that failure. Regulatory theory has paid relatively little attention to this distinction. Were regulation to consist solely of duty-imposing norms, such neglect might be defensible. In the context of a system, however, regulation can also take the form of interventions aimed at mitigating the potentially systemic consequences of a financial failure. We show that this dual role of financial regulation implies that ex ante regulation and ex post regulation should be balanced in setting financial regulatory policy, and we offer guidelines for achieving that balance.

Keywords: financial regulation, systemic risk, ex ante regulation, ex post regulation, Dodd Frank

Suggested Citation

Anabtawi, Iman and Schwarcz, Steven L., Regulating Ex Post: How Law Can Address the Inevitability of Financial Failure (November 18, 2013). 92 Texas Law Review 75 (2013); UCLA School of Law, Law-Econ Research Paper No. 13-07. Available at SSRN: https://ssrn.com/abstract=2271587

Iman Anabtawi

University of California, Los Angeles (UCLA) - School of Law ( email )

385 Charles E. Young Dr. East
Room 1242
Los Angeles, CA 90095-1476
United States

Steven L. Schwarcz (Contact Author)

Duke University School of Law ( email )

210 Science Drive
Box 90362
Durham, NC 27708
United States
919-613-7060 (Phone)
919-613-7231 (Fax)

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