Securities Law Prof Blog

Editor: Eric C. Chaffee
Univ. of Toledo College of Law

Sunday, December 20, 2009

Cohen et alia on Regulation of Structured Products

Have Us Regulators Been Soft on Banks Over Structured Products? Yes, by George M. Cohen, University of Virginia School of Law; David A. Dana, Northwestern University - School of Law; Susan P. Koniak, Boston University School of Law; and Thomas Ross, was recently posted on SSRN.  Here is the abstract:

This article was originally written as a comment on the proposed Interagency Statement on Sound Practices Concerning Elevated Risk Complex Structured Finance Activities, 71 Fed. Reg. 28329 (May 16, 2006). The statement is Interagency Statement is a joint effort of all the federal agencies having a role in the regulation of financial institutions, including the SEC, FDIC, Federal Reserve, OTS, and the Comptroller of the Currency. The comment argues that the proposed Interagency Statement is a mistake and should be withdrawn because in its current form, it can be (and we think will be) read to encourage and condone illegal conduct. The proposed Interagency Statement gives financial institutions too much discretion to determine which “complex structured finance transactions” (CSFT) pose the problem of “elevated risk.” More troubling, the Statement provides a list of transaction characteristics that “may . . . warrant additional scrutiny” without recognizing or emphasizing that all of the characteristics are strongly indicative of potential fraud which in our view invites reckless participation in illegal conduct, either as a primary wrongdoer or as an aider and abetter.

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