This Article develops a framework for the regulation of capital in SIFIs that departs from current regulatory practice. Starting from the assumption of perfect capital markets, it first shows that a limit on leverage is an optimal regulatory policy when capital markets are perfect, but bank failures entail an external social cost. It then argues that capital regulation can be effectively adapted to the imperfections that exist in real financial markets such as taxes, transaction costs, and incomplete information. Many of these imperfections strengthen the argument for capital regulation. In cases where capital regulation may inefficiently reduce lending, suitable regulatory design can mitigate this effect. This Article proposes a security design—automatic convertibles—to mitigate the cost of issuing capital; considers the strategic responses of SIFIs to regulation; and critiques current regulations as well as other market-based proposals in this literature.
Steven M. Davidoff, Andrew C.W. Lund, and Robert Schonlau
Luca Enriques, Ronald J. Gilson, and Alessio M. Pacces
Steven R. Glaser
This article aims to address one procedural protection that may not be available to defendants in civil enforcement actions: defenses based on statutes of limitations. I review the relevant case law and find that, although courts consider some remedies sought by the SEC to be “punitive,” and therefore subject to a five-year statute of limitations prescribed by 28 U.S.C. § 2462, other remedies sought by the SEC are considered either “equitable” or “remedial,” and are therefore not subject to any statute of limitations. These equitable remedies include the SEC’s ability to bar individuals from working in the securities industry. This article discusses a developing body of law, which holds that where sanctions imposed by the SEC are sufficiently severe, and where they fail to either (a) involve ill-gotten gains by a defendant or (b) address a plausible threat to public safety, they cannot be considered remedial in nature. Accordingly, some limitations period must apply to such offenses. This limitation is especially important when a defendant may be barred from the securities industry, effectively ending his or her career. I argue further that, as the SEC’s civil enforcement of securities laws becomes increasingly aggressive and prosecutorial in nature, courts should ensure that the SEC does not impose these quasi-criminal penalties while enjoying a lower burden of proof to establish liability, and should afford defendants certain procedural protections to which they are entitled.
By surveying eleven different countries and the models of activism prevalent therein, and by widening the framework to account for the myriad forms of shareholder activism, this paper fills an important gap in current corporate governance literature. In particular, the paper’s main argument is that calls for regulatory changes are currently framed both too specifically and too generally. By targeting specific actors like hedge funds without accounting for how such reform may affect other players, these regulatory proposals operate too narrowly. Still, others increasingly call for the adoption of specific arrangements from foreign jurisdictions without considering a full model of activism. This paper tackles these issues by providing a comparative examination of different models and proposing a procedural framework for any discussion of shareholder activism.
A Two-Part Disclosure Mandate as a Compromise Solution to the Debate on Section 13(d)’s Disclosure Window
A compromise solution could help bridge the gap between these two factions. Under the proposed solution, investors would be required to notify the board of a public company within one day of acquiring more than 5% of the company’s shares, while still having ten days to publicly notify the Commission. On its face, the compromise solution creates the potential to satisfy both sides of the debate. On one hand, a board could disclose to their shareholders any significant investor acquisitions in their company within a day of the Section 13(d) threshold being reached, and, on the other, the investor could negotiate with the board to keep the information confidential for a longer period of time so that the investor could acquire more shares while simultaneously advancing ideas for enhancing the value of the company without the glare of the public spotlight. Although legal and strategic challenges exist in implementing this solution, neither poses a risk of undermining its utility.