This symposium issue seeks to harmonize international financial regulation by comparing and critiquing U.S. and EU approaches, including their convergences and divergences and the reasons therefor. To achieve this goal, the issue introduces a somewhat innovative approach: each article is co-authored by leading U.S. and EU financial regulation scholars. The divergences in the U.S. and EU financial regulatory frameworks might be explained, at least in part, by the differences in the structure of their financial systems: the United States is primarily market-based, whereas the European Union is largely bank-based. 1 For example, approximately 80% of corporate financing in the United States is funded through the capital markets, compared to only 30% in the European Union. 2 Another possible explanation for the divergences is that EU regulators and the European Central Bank have been more willing to impose top-down policy than their U.S. counterparts, which tend to rely more on voluntary, market-led efforts. Recognizing these differences, this symposium issue's comparative analyses should help the United States and the European Union learn from each other's regulatory successes and failures. That, in turn, should help identify "best practices" and increase regulatory efficiency. The comparative analyses should also further economic growth by increasing U.S. and EU regulatory convergence, building trust, and encouraging cross-border market access and business relationships. The demand for such cross-border access and business is increasingly critical with the expansion of crypto-assets and decentralized finance (DeFi), which transcend geographic boundaries. Regulatory convergence should also increase legal certainty, reduce regulatory risk, lower compliance costs, and facilitate more cooperative cross-border regulatory supervision. Additionally, such convergence could provide more common crisis responses to similar market failures, thereby reducing cross-border financial contagion.

This article addresses a complex and critically important issue that lies at the intersection of contract, property, commercial, and bankruptcy law and is crucial to corporate wealth production: what constitutes the sale of intangible rights to payment, or "receivables."Courts often recharacterize contracts that purport to sell such rights if, notwithstanding being designated a sale, some of the substantive terms of the transfer are indicative of a loan. The jurisprudence on this sale-versus-loan problem is muddled and inconsistent. The confusion is compounded by the intangibility of receivables, subverting the old adage that "possession is nine-tenths of the law."About the only well-established legal principle is that a court may sometimes, though it is unclear when, recharacterize a transaction that parties deem a sale to be a secured loan. The resulting uncertainty has serious real-world consequences. A recharacterization means that a purported buyer would not own, but merely would have a security interest in, the receivables and their collections, with the relatively limited rights and remedies associated with that interest. The risk of recharacterization thereby impairsreceivables financingas a tool to unlock the growing segment of the world's money-currently estimated at trillions of dollars-and, in developed countries, the bulk of corporate wealth that is locked up in receivables. To reduce that uncertainty and mitigate its costs, this article seeks to build a rational, consistent, and cost-effective legal framework for resolving the sale-versus-loan problem.

Decentralized finance (DeFi) promises cheaper, faster and more accessible financial services by replacing traditional regulated intermediaries with software protocols and smart contracts. But removing those intermediaries also removes the practical chokepoints for implementing modern financial regulation: customer identification and screening, disclosure, recordkeeping, operational safeguards and incident reporting. This paper argues that the core compliance challenge in DeFi is therefore a governance problem: regulators should focus less on DeFi’s underlying computer code and more on the control points where compliance duties could realistically be assigned, supervised and enforced. Identifying those control points could be challenging, however, because DeFi responsibilities are dispersed across software developers, governance structures, parties that interface with investors and third-party service providers. To address that challenge, the paper proposes a layered regulatory strategy comprising four complementary approaches: identifying and regulating gateway intermediaries that facilitate access to DeFi services; prescribing the compliance obligations those intermediaries should assume; establishing targeted governance standards for smart contracts and the oracle and data inputs on which they depend; and applying shadow-banking-type safeguards to constrain spillover channels between DeFi and the traditional financial system. No single approach would be sufficient on its own; their combined effect would reconstruct, at workable control points, the most critical accountability and oversight functions that DeFi displaces. Properly designed and implemented, this strategy could help to preserve DeFi’s efficiency benefits while cost-effectively restoring regulatory protection and accountability.

Although federal bankruptcy law, epitomized by chapter 11, has a pro-debtor-or at least, anti-liquidation-bias, no scholarship analyzes whether that bias creates net value or merely results in a zero-sum game that redistributes value from creditors to debtors. This article shows that the bias is due more to accidents of history, path dependence, and self-interested lobbying than to any reasoned analysis of value creation. The bias also is inconsistent with many foreign insolvency laws. The article analyzes whether bankruptcy law should have such a pro-debtor bias. An empirical analysis of that question is not generally feasible because debtor and creditor costs and benefits in bankruptcy cannot be accurately quantified and compared. The article therefore engages in a second-best methodology: it builds on the pro-debtor shareholder-primacy model of corporate governance, which is widely viewed as maximizing value, by stressing that model under the circumstances of bankruptcy. This reveals two critical differences. First, creditors become the primary residual claimants of the firm, whereas shareholders are relegated to secondary residual claimant status. That changes the identity of the beneficiary of the "shareholder" primacy model, whose goal is to favor the firm's primary residual claimants. Second, the covenants that normally protect creditors become unenforceable in bankruptcy, suggesting the need for additional creditor protection. Utilizing these differences, the article proposes and assesses a "creditor-primacy" governance model for debtors in bankruptcy. It also examines how such a model could be applied to maximize bankruptcy value by increasing creditor recovery without unnecessarily jeopardizing shareholder return. The article recommends, for example, a threshold viability test that would require debtors that are unlikely to successfully reorganize, and therefore likely ultimately to liquidate, to be liquidated at the outset of a chapter 11 case. That test would save the considerable expenses of proceeding through bankruptcy, which can severely reduce creditor recovery. Such a test also should reduce agency costs and moral hazard. Furthermore, it should help to avoid the sunk-cost fallacy that leads to a disproportionately high number of supposedly reorganized debtors having to subsequently refile chapter 11 cases.

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Section 1111(b) is one of the Bankruptcy Codes' most complex and challenging provisions. The existing scholarship focuses on the so-called 1111(b)(2) election, in which an undersecured creditor, in order to protect against undervaluation of collateral, can sometimes opt to have its claim treated in Chapter 11 as a fully secured claim. This Article, in contrast, focuses on what can happen if that election is not made. Absent that election, 1111(b)(1) automatically converts debt claims that are non-recourse under state law into full recourse claims. The consequence o f this lobbied conversion is that non-recourse claims are no longer limited to the value of the collateral, creating unbargained and unfair benefits for non-recourse lenders to the detriment of debtors and unsecured creditors. This problem is important: domestic finance companies engage in roughly half a billion dollars o f non-recourse financing yearly, non-recourse loans make up a significant portion o f commercial real estate financing, and virtually all securitization and other structured financing is made on a non-recourse basis. The Article explains the questionable origin of the 1111(b)(1) non-recourse-to-recourse debt conversion and analyzes how that section should be amended to fairly protect non-recourse lenders without harming third parties or impairing bankruptcy policies.

The term “FinTech” encompasses advances in technology that facilitate financial innovations, such as crypto-assets, algorithmic smart contracts, and decentralized financial platforms and services. Although FinTech promises greatly expanded financial inclusion and other valuable economic benefits, its radical transformational consequences are threatening to disrupt finance and even jeopardize the stability of the financial system. Scholars have been grappling with how the law can control these risks, but their contributions to date have been largely ad hoc. They also disagree whether FinTech-driven innovations are radically changing the financial system, necessitating complete new forms of regulation, or whether those innovations merely present the same types of risks already associated with electronic banking. This Article attempts to build a systematic framework for regulating FinTech-driven innovations. In that process, it clarifies and simplifies the confusing terminology, which makes FinTech appear more complicated than it is. The Article also shows how its framework should more generally inform the regulation of financial innovation.

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Although we use money every day, few really understand it. Most define it by its most obvious manifestation—government-issued paper certificates or coins that specify units of currency, such as dollars or euros. The advent of digital currencies is therefore confounding almost everyone. From an epistemological and regulatory standpoint, this Article argues that money should also be viewed functionally—as a "right" that serves one or more of the generally accepted functions of money. The Article focuses on two of money's most generally accepted functions: to serve as a medium of exchange to facilitate the sale of goods and services, and to serve as a store of value. To perform these functions, money must be transferable, ideally with low transaction costs, and also must represent something valuable. This perspective can enable readers to understand, more intuitively, the changing nature of money and can help to de-mystify digital (that is, electronically evidenced) currencies. For example, the current differences between tangible and digital currencies relate to transferability; electronic transfer can be quicker and less costly than physical transfer. Furthermore, the current differences among different forms of digital currencies relate to value, which is influenced by who—government or private—issues the money and, in the case of private issuers, whether or not the money is backed by assets having intrinsic value. Viewing money functionally also can inform monetary regulation. In addition to the traditional goals of limiting third-party harm, monetary regulation should help to protect money's functions by correcting market failures that impair the low-cost transferability or the stable value of the rights that are becoming widely used as money—widespread usage suggesting that the innovation is surviving in the marketplace of ideas and is perceived as beneficial. This "functional" approach would expand the proper scope of financial regulation beyond its traditional negative role, protecting against harm, to also include the positive role of helping to promote beneficial business innovations.

Do violations of contractual representations and warranties ("R&Ws") merely shift risk by giving rise to contract-breach damages, or can they also give rise to fraud claims? This question is at the heart of numerous lawsuits, including billions of dollars of securitization-related litigation. Many agreements governing the issuance of securities in these transactions limit R&W breach claims to a sole contractual remedy-curing the violation or repurchasing nonconforming loans that caused the violation. Although parties making the R&Ws argue that this sole remedy should adequately shift risk, investor plaintiffs contend that it insufficiently shifts the risk if the violations are extensive. Plaintiffs also argue that extensive R&W violations should constitute fraud, and that in the presence of fraud, their remedies should not be limited. This Article seeks to resolve these issues and provide a more systematic framework for analyzing R&W breaches.

This paper is based on the author's November 2024 presentation to the New York City Bar Association's Structured Finance Committee. It tests a framework developed by the author for regulating financial innovation--including FinTech, crypto-assets, and DeFi--by applying the framework retroactively to the innovative but highly leveraged and complex re-securitization transactions that bore partial responsibility for triggering the 2008 global financial crisis. The paper also applies that framework to regulating future innovations in securitization, including monetizing nonfinancial assets such as NFTs and using risk securitization to insure against pandemics and other catastrophic risks.

Although it is an essential part of business law, commercial law has uncertain boundaries. That uncertainty creates significant legal ambiguities and inconsistencies, confusing lawyers and courts and causing misinterpretations that disrupt commerce and reduce efficiency. This Article hypothesizes and tests possible explanations for the uncertainty, including that commercial law’s development has been path dependent, ad hoc, and lacking well-defined normative purposes. The Article then analyzes what those boundaries should be, arguing that commercial law should cover all business-related transfers of property, subject to exceptions needed to reduce transaction costs and otherwise increase economic efficiency. The Article also compares its proposed boundaries to the scope of commercial law under the Uniform Commercial Code, both to test whether those boundaries are tethered to reality and to examine whether the scope of the UCC itself should be modified.

Bankruptcy-remote structuring, a legal strategy with potential public policy implications, is crucial both to a range of important financial transactions-including securitization, project finance, covered bonds, oil- and-gas and mineral production payments, and other forms of structured financing-and to the ring-fencing of utilities and other publicly essential firms. In finance, the goal is contractually to reallocate risk by structuring securities-issuing entities that, absent the bankruptcy risks inherent to operating businesses, can attract investments based on specified cash flows. In ring-fencing, the goal is contractually to structure firms to minimize bankruptcy risks, thereby assuring their continued business operations. Parties engaging in bankruptcy-remote structuring usually seek to optimally reallocate risk, including by reducing information asymmetry and assigning higher risk to yield-seeking investors, thereby enabling firms to diversify and lower their costs of capital. In reality, bankruptcy-remote structuring can sometimes create harmful externalities. For example, some blame bankruptcy-remote securitization transactions for triggeringthe2007- 08 global financial crisis by shifting risk from contracting parties to the public. This Article undertakes a normative analysis of bankruptcy-remote structuring by examining the extent to which parties should have the right to reallocate bankruptcy risk. It is the first to do so both from the standpoint of public policy-examining how bankruptcy-law policy should limit freedom of contract; and also from the standpoint of cost-benefit analysis- examining how externalities should limit freedom of contract. The Article also examines how to reform bankruptcy-remote structuring to reduce its externalities.

Recent innovations in financial technology, or “FinTech,” are enabling the fractionalization of investment securities, such as shares of stock and bonds. We explain how this fractionalization can fundamentally expand financial inclusion both for investors and for businesses, including small and medium-sized enterprises (SMEs). Using the fractionalization of investment securities as a model, we also counter the argument that FinTech-enabled transactions should not need regulation because they are governed by mathematical algorithms under so-called smart contracts. Additionally, we derive and test a regulatory framework to identify and help to mitigate the risks caused by fractionalization. In the process, we also explain and de-mystify smart contracts, decentralized finance (“DeFi”), and other fundamental, but often confusing, concepts associated with FinTech.

For decades, businesses have used securitization to monetize assets by selling to investors interests in the assets' future value. Traditionally, securitization has monetized so-called financial assets, which generate cash flow to pay the investors. That payment source, coupled with the ability of investors to resell their interests, can create a highly liquid and attractive investment. Even so, securities laws generally restrict these investments to sophisticated and institutional investors. In recent years, securitization has spawned a new generation of transactions that monetize nonfinancial assets and other rights that do not ordinarily generate cash flow, such as art, collectible cars, access to basketball video highlights, prestigious real estate, and even fictitious real estate used in video games. Industry observers variously use the terms "tokenization" and nonfungible tokens, or "NFTs," to refer to these non-cash-flow monetization transactions. Moody's and others believe that these transactions have "transformative potential," including the prospect of creating greater financial inclusion. However, because non-cash-flow monetizations do not generate cash, investors in these transactions lack that source of payment. Selling the underlying nonfinancial assets could generate another payment source, but the relative uniqueness (and sometimes fictitious nature) of those assets can make them difficult to sell-and owners of those assets may contractually restrict their sale. For payment, investors therefore must rely primarily on the ability to resell their interests to other investors, hoping a viable resale market exists. The reality, though, is that the pricing in such a resale market is extremely volatile, and even the market's existence is unpredictable. Non-cash-flow monetization transactions thus create enormous liquidity risk for investors, who currently include both individuals and institutions. Although illiquidity is the central cause of bankruptcy, as well as a major systemic threat to the financial system, many investors ignore that risk. They are attracted, among other things, by the cachet of the underlying assets and by the hype associated with blockchain and other financial technology ("FinTech") which often is used to evidence the ownership and facilitate the transfer of interests in these transactions. Investors also appear, mistakenly, to conflate the ease by which FinTech can facilitate the transfer of those interests with the existence of market demand to purchase such interests. Furthermore, because those interests are often referred to as tokens or coins, many investors fail to recognize that they are investing in securities. Worse, unsophisticated investors might not even understand the basics of what they are buying. This Article has two goals, one descriptive, the other normative. The descriptive goal is to help regulators, investors, and other market participants understand non-cash-flow monetization transactions, including their risks and benefits. The normative goal is to analyze how those transactions should be regulated to preserve their benefits and minimize their risks.

The downfall of Enron Corporation often epitomizes corporate fraud. One of the world’s fastest growing and most inventive companies, Enron had engaged in a range of complex structured hedging transactions designed to achieve accounting rather than operating results. Its principal motivation, though, was to avoid the risk of incurring financial-statement losses that could impair its credit rating and thereby destroy its primary business of derivatives-based energy trading.Enron’s management has been criticized for engaging in these structured hedging transactions, and some of its managers were sent to jail. This symposium article concerning “Business and Financial Crimes” attempts to set forth the facts objectively. It observes, among other things, that in engaging in the structured hedging transactions, Enron’s managers complied with reasonable corporate processes, had the help of outside counsel, obtained independent fairness opinions, and received at least cautious approval from the big-five accounting firm that acted as external auditor. The article ultimately asks, “If you were advising Enron, what would you have recommended the managers should do?” The article suggests that Enron’s collapse and the resulting congressional response illustrate how society can overreact to dramatic business failures and how regulatory responses can sometimes miss the mark. It contends that corporate managers often must—as Enron’s managers did—take risks that, ex ante, are viewed as reasonable to enable their firms to remain competitive in a global economy. That makes it inevitable that some firms will fail. Failure, therefore, should not automatically be judged as managerial misfeasance.