Financial Law and Risk Control

Models banks as institutions that provide liquidity insurance through demand deposits while holding illiquid assets. The paper shows how such contracts can generate multiple equilibria, including self-fulfilling bank runs, and explains why deposit insurance can eliminate inefficient runs.

Douglas W. Diamond and Philip H. Dybvig. "Bank Runs, Deposit Insurance, and Liquidity." Journal of Political Economy, 1983.

@article{Diamond1983Bank,
  title = {Bank Runs, Deposit Insurance, and Liquidity},
  author = {Douglas W. Diamond and Philip H. Dybvig},
  year = {1983},
  journal = {Journal of Political Economy},
  doi = {10.1086/261155},
  url = {https://www.journals.uchicago.edu/doi/10.1086/261155}
}

Argues that the financial crisis intensified the Great Depression through nonmonetary channels by disrupting credit intermediation. The article emphasizes how banking distress, borrower quality information, and the cost of credit allocation affected output beyond changes in the money supply.

Ben S. Bernanke. "Nonmonetary Effects of the Financial Crisis in the Propagation of the Great Depression." American Economic Review, 1983.

@article{Bernanke1983Nonmonetary,
  title = {Nonmonetary Effects of the Financial Crisis in the Propagation of the Great Depression},
  author = {Ben S. Bernanke},
  year = {1983},
  journal = {American Economic Review},
  url = {https://www.jstor.org/stable/1808111}
}

Develops a theory of financial intermediaries as delegated monitors. The paper explains how diversification can reduce the cost of providing monitoring incentives and connects debt contracts, bankruptcy costs, portfolio structure, and bank capital structure to information problems in lending.

Douglas W. Diamond. "Financial Intermediation and Delegated Monitoring." Review of Economic Studies, 1984.

@article{Diamond1984Financial,
  title = {Financial Intermediation and Delegated Monitoring},
  author = {Douglas W. Diamond},
  year = {1984},
  journal = {Review of Economic Studies},
  doi = {10.2307/2297430},
  url = {https://doi.org/10.2307/2297430}
}

Explains demandable debt as a governance mechanism that can discipline banks and constrain managers. The article is useful for understanding why fragile funding structures may also perform monitoring and incentive functions.

Charles W. Calomiris and Charles M. Kahn. "The Role of Demandable Debt in Structuring Optimal Banking Arrangements." American Economic Review, 1991.

@article{Calomiris1991The,
  title = {The Role of Demandable Debt in Structuring Optimal Banking Arrangements},
  author = {Charles W. Calomiris and Charles M. Kahn},
  year = {1991},
  journal = {American Economic Review},
  url = {https://www.jstor.org/stable/2006865}
}

Explains how securitization transforms pools of receivables into marketable securities through bankruptcy remoteness, credit enhancement, and risk allocation. The article is a transactional foundation for analyzing structured finance.

Steven L. Schwarcz. "The Alchemy of Asset Securitization." Stanford Journal of Law, Business & Finance, 1994.

@article{Schwarcz1994The,
  title = {The Alchemy of Asset Securitization},
  author = {Steven L. Schwarcz},
  year = {1994},
  journal = {Stanford Journal of Law, Business & Finance},
  url = {https://scholarship.law.duke.edu/faculty_scholarship/988/}
}

Applies incentive theory to bank solvency and external intervention. The book models prudential regulation as delegated monitoring on behalf of dispersed depositors and evaluates capital requirements, intervention rights, accounting manipulation, deposit insurance, and alternative monitoring arrangements.

Mathias Dewatripont and Jean Tirole. "The Prudential Regulation of Banks." MIT Press, 1994.

@book{Dewatripont1994The,
  title = {The Prudential Regulation of Banks},
  author = {Mathias Dewatripont and Jean Tirole},
  year = {1994},
  publisher = {MIT Press},
  url = {https://mitpress.mit.edu/9780262513869/the-prudential-regulation-of-banks/}
}

Models interbank lending as a source of both monitoring incentives and contagion risk. The paper helps connect payment-system design, supervisory policy, and systemic-risk externalities.

Jean-Charles Rochet and Jean Tirole. "Interbank Lending and Systemic Risk." Journal of Money, Credit and Banking, 1996.

@article{Rochet1996Interbank,
  title = {Interbank Lending and Systemic Risk},
  author = {Jean-Charles Rochet and Jean Tirole},
  year = {1996},
  journal = {Journal of Money, Credit and Banking},
  url = {https://www.jstor.org/stable/2078018}
}

Examines the purposes and institutional design of financial regulation, including prudential supervision, systemic stability, consumer protection, and the allocation of regulatory responsibilities. The book remains a useful reference for distinguishing financial regulation from ordinary market regulation.

Charles Goodhart. "Financial Regulation: Why, How and Where Now?." Routledge, 1998.

@book{Goodhart1998Financial,
  title = {Financial Regulation: Why, How and Where Now?},
  author = {Charles Goodhart},
  year = {1998},
  publisher = {Routledge},
  url = {https://www.routledge.com/Financial-Regulation-Why-How-and-Where-Now/Goodhart/p/book/9780415185790}
}

Compares market-based and bank-based financial systems as different institutional responses to information, governance, risk sharing, and competition. The book rejects a single best architecture and emphasizes functional tradeoffs.

Franklin Allen and Douglas Gale. "Comparing Financial Systems." MIT Press, 2000.

@book{Allen2000Comparing,
  title = {Comparing Financial Systems},
  author = {Franklin Allen and Douglas Gale},
  year = {2000},
  publisher = {MIT Press},
  url = {https://mitpress.mit.edu/9780262011778/comparing-financial-systems/}
}

Models contagion through interregional claims among banks that share liquidity risk. The paper shows how a local liquidity shock can propagate through an incomplete network of claims and makes network structure central to the legal design of interbank markets and systemic safeguards.

Franklin Allen and Douglas Gale. "Financial Contagion." Journal of Political Economy, 2000.

@article{Allen2000Financial,
  title = {Financial Contagion},
  author = {Franklin Allen and Douglas Gale},
  year = {2000},
  journal = {Journal of Political Economy},
  doi = {10.1086/262109},
  url = {https://doi.org/10.1086/262109}
}

Models interbank credit links, contagion, and central-bank liquidity assistance. The article clarifies why payment and settlement connections can distribute liquidity efficiently while creating channels for systemic loss.

Xavier Freixas, Bruno M. Parigi, and Jean-Charles Rochet. "Systemic Risk, Interbank Relations, and Liquidity Provision by the Central Bank." Journal of Money, Credit and Banking, 2000.

@article{Freixas2000Systemic,
  title = {Systemic Risk, Interbank Relations, and Liquidity Provision by the Central Bank},
  author = {Xavier Freixas, Bruno M. Parigi, and Jean-Charles Rochet},
  year = {2000},
  journal = {Journal of Money, Credit and Banking},
  url = {https://www.jstor.org/stable/2601188}
}

Explains how banks can create liquidity while financing relationship-specific loans, and why the fragile funding structure that supports this function also creates run risk. The model clarifies tradeoffs surrounding bank capital, narrow banking, and suspension of convertibility.

Douglas W. Diamond and Raghuram G. Rajan. "Liquidity Risk, Liquidity Creation, and Financial Fragility: A Theory of Banking." Journal of Political Economy, 2001.

@article{Diamond2001Liquidity,
  title = {Liquidity Risk, Liquidity Creation, and Financial Fragility: A Theory of Banking},
  author = {Douglas W. Diamond and Raghuram G. Rajan},
  year = {2001},
  journal = {Journal of Political Economy},
  doi = {10.1086/319552},
  url = {https://doi.org/10.1086/319552}
}

Examines banking concentration, competition, regulation, and systemic-crisis incidence across countries. The study distinguishes concentration from competitive conditions and provides a basis for testing prudential claims about banking structure.

Thorsten Beck, Asli Demirgüç-Kunt, and Ross Levine. "Bank Concentration, Competition, and Crises: First Results." Journal of Banking & Finance, 2006.

@article{Beck2006Bank,
  title = {Bank Concentration, Competition, and Crises: First Results},
  author = {Thorsten Beck, Asli Demirgüç-Kunt, and Ross Levine},
  year = {2006},
  journal = {Journal of Banking & Finance},
  doi = {10.1016/j.jbankfin.2005.05.010},
  url = {https://doi.org/10.1016/j.jbankfin.2005.05.010}
}

Develops models of liquidity, banking panics, asset-price volatility, contagion, and crisis policy. The book situates financial instability within the structure of markets and intermediaries rather than treating crises as isolated institutional failures.

Franklin Allen and Douglas Gale. "Understanding Financial Crises." Oxford University Press, 2007.

@book{Allen2007Understanding,
  title = {Understanding Financial Crises},
  author = {Franklin Allen and Douglas Gale},
  year = {2007},
  publisher = {Oxford University Press},
  doi = {10.1093/acprof:oso/9780199251414.001.0001},
  url = {https://doi.org/10.1093/acprof:oso/9780199251414.001.0001}
}

Provides a microeconomic theory of financial intermediation built around asymmetric information, competition, liquidity, capital regulation, and public intervention. The second edition connects core banking models to payments and prudential policy.

Xavier Freixas and Jean-Charles Rochet. "Microeconomics of Banking." MIT Press, second edition, 2008.

@book{Freixas2008Microeconomics,
  title = {Microeconomics of Banking},
  author = {Xavier Freixas and Jean-Charles Rochet},
  year = {2008},
  publisher = {MIT Press, second edition},
  url = {https://mitpress.mit.edu/9780262062701/microeconomics-of-banking/}
}

Develops a legal and economic framework for identifying systemic risk beyond individual banks. It links disintermediated markets, tragedy-of-the-commons incentives, transmission channels, and the case for regulation.

Steven L. Schwarcz. "Systemic Risk." Georgetown Law Journal, 2008.

@article{Schwarcz2008Systemic,
  title = {Systemic Risk},
  author = {Steven L. Schwarcz},
  year = {2008},
  journal = {Georgetown Law Journal},
  url = {https://scholarship.law.duke.edu/faculty_scholarship/1903/}
}

Explains the mechanisms of the 2007-2008 liquidity and credit crisis, including funding liquidity, market liquidity, leverage, securitization, and amplification channels. The article is useful for connecting crisis dynamics to prudential supervision and systemic-risk regulation.

Markus K. Brunnermeier. "Deciphering the Liquidity and Credit Crunch 2007-2008." Journal of Economic Perspectives, 2009.

@article{Brunnermeier2009Deciphering,
  title = {Deciphering the Liquidity and Credit Crunch 2007-2008},
  author = {Markus K. Brunnermeier},
  year = {2009},
  journal = {Journal of Economic Perspectives},
  doi = {10.1257/jep.23.1.77},
  url = {https://www.aeaweb.org/articles?id=10.1257/jep.23.1.77}
}

Develops a model in which market liquidity and traders' funding liquidity reinforce each other. The paper explains liquidity spirals, margin constraints, flight to liquidity, and the conditions under which shocks to funding constraints can reduce market liquidity and amplify financial stress.

Markus K. Brunnermeier and Lasse Heje Pedersen. "Market Liquidity and Funding Liquidity." Review of Financial Studies, 2009.

@article{Brunnermeier2009Market,
  title = {Market Liquidity and Funding Liquidity},
  author = {Markus K. Brunnermeier and Lasse Heje Pedersen},
  year = {2009},
  journal = {Review of Financial Studies},
  doi = {10.1093/rfs/hhn098},
  url = {https://doi.org/10.1093/rfs/hhn098}
}

Sets out supervisory principles for bank stress-testing programmes after weaknesses revealed by the financial crisis. The guidance covers governance, scenario design, implementation, capital planning, supervisory assessment, and the responsibilities of supervisors in evaluating stress-testing practices.

Basel Committee on Banking Supervision. "Principles for sound stress testing practices and supervision." Bank for International Settlements, 2009.

@techreport{Supervision2009Principles,
  title = {Principles for sound stress testing practices and supervision},
  author = {Basel Committee on Banking Supervision},
  year = {2009},
  institution = {Bank for International Settlements},
  url = {https://www.bis.org/publ/bcbs155.htm}
}

Traces how securitization, excessive maturity transformation, market breakdown, fair-value accounting, thin equity, and prudential rules interacted during the global financial crisis. The article argues that reform must address system architecture as well as individual incentives.

Martin F. Hellwig. "Systemic Risk in the Financial Sector: An Analysis of the Subprime-Mortgage Financial Crisis." De Economist, 2009.

@article{Hellwig2009Systemic,
  title = {Systemic Risk in the Financial Sector: An Analysis of the Subprime-Mortgage Financial Crisis},
  author = {Martin F. Hellwig},
  year = {2009},
  journal = {De Economist},
  doi = {10.1007/s10645-009-9110-0},
  url = {https://link.springer.com/article/10.1007/s10645-009-9110-0}
}

Argues that financial regulation must address system-wide externalities rather than only the solvency of individual institutions. The report develops principles for macroprudential policy, procyclicality, liquidity regulation, capital standards, and the institutional design of supervision.

Markus Brunnermeier, Andrew Crockett, Charles Goodhart, Avinash Persaud, and Hyun Song Shin. "The Fundamental Principles of Financial Regulation." Geneva Reports on the World Economy, 2009.

@article{Brunnermeier2009The,
  title = {The Fundamental Principles of Financial Regulation},
  author = {Markus Brunnermeier, Andrew Crockett, Charles Goodhart, Avinash Persaud, and Hyun Song Shin},
  year = {2009},
  journal = {Geneva Reports on the World Economy},
  url = {https://cepr.org/publications/books-and-reports/geneva-11-fundamental-principles-financial-regulation}
}

Evaluates objections to materially higher bank-equity requirements after the crisis. The paper distinguishes private funding costs from social costs and explains why leverage incentives and implicit guarantees weaken arguments for preserving pre-crisis capital structures.

Martin F. Hellwig. "Capital Regulation after the Crisis: Business as Usual?." ifo DICE Report, 2010.

@article{Hellwig2010Capital,
  title = {Capital Regulation after the Crisis: Business as Usual?},
  author = {Martin F. Hellwig},
  year = {2010},
  journal = {ifo DICE Report},
  url = {https://ideas.repec.org/p/mpg/wpaper/2010_31.html}
}

Documents procyclical leverage among marked-to-market financial intermediaries and links aggregate balance-sheet growth to market risk. The article gives macroprudential regulation a mechanism connecting leverage management, repo funding, risk appetite, and system-wide liquidity.

Tobias Adrian and Hyun Song Shin. "Liquidity and Leverage." Journal of Financial Intermediation, 2010.

@article{Adrian2010Liquidity,
  title = {Liquidity and Leverage},
  author = {Tobias Adrian and Hyun Song Shin},
  year = {2010},
  journal = {Journal of Financial Intermediation},
  doi = {10.1016/j.jfi.2008.12.002},
  url = {https://doi.org/10.1016/j.jfi.2008.12.002}
}

Examines the rise of shadow banking and proposes regulatory principles for money-market funds, securitization, and repos. The article emphasizes privately created money, bankruptcy safe harbors, collateral rules, and public guarantees as institutional levers for controlling run-prone financial intermediation.

Gary Gorton and Andrew Metrick. "Regulating the Shadow Banking System." Brookings Papers on Economic Activity, 2010.

@article{Gorton2010Regulating,
  title = {Regulating the Shadow Banking System},
  author = {Gary Gorton and Andrew Metrick},
  year = {2010},
  journal = {Brookings Papers on Economic Activity},
  url = {https://www.brookings.edu/articles/regulating-the-shadow-banking-system-with-comments-and-discussion/}
}

Analyzes the post-crisis redesign of financial regulation associated with the Dodd-Frank Act. The volume examines systemic risk oversight, resolution authority, derivatives regulation, capital and liquidity requirements, consumer protection, and the institutional architecture of financial supervision.

Viral V. Acharya, Thomas F. Cooley, Matthew Richardson, and Ingo Walter. "Regulating Wall Street: The Dodd-Frank Act and the New Architecture of Global Finance." Wiley, 2010.

@book{Acharya2010Regulating,
  title = {Regulating Wall Street: The Dodd-Frank Act and the New Architecture of Global Finance},
  author = {Viral V. Acharya, Thomas F. Cooley, Matthew Richardson, and Ingo Walter},
  year = {2010},
  publisher = {Wiley},
  url = {https://www.wiley.com/en-us/Regulating+Wall+Street%3A+The+Dodd+Frank+Act+and+the+New+Architecture+of+Global+Finance-p-9780470768778}
}

Contrasts microprudential regulation aimed at individual institutions with macroprudential regulation aimed at the financial system as a whole. The article identifies market failures behind modern financial crises and proposes regulatory tools to reduce fragility created by leverage, short-term funding, and system-wide spillovers.

Samuel G. Hanson, Anil K. Kashyap, and Jeremy C. Stein. "A Macroprudential Approach to Financial Regulation." Journal of Economic Perspectives, 2011.

@article{Hanson2011A,
  title = {A Macroprudential Approach to Financial Regulation},
  author = {Samuel G. Hanson, Anil K. Kashyap, and Jeremy C. Stein},
  year = {2011},
  journal = {Journal of Economic Perspectives},
  doi = {10.1257/jep.25.1.3},
  url = {https://www.aeaweb.org/articles?id=10.1257%2Fjep.25.1.3}
}

Sets out the Basel III capital framework developed after the global financial crisis. The document is a core institutional source for learning about capital quality, capital buffers, leverage, and resilience-oriented banking regulation.

Basel Committee on Banking Supervision. "Basel III: A global regulatory framework for more resilient banks and banking systems." Bank for International Settlements, 2011.

@techreport{Supervision2011Basel,
  title = {Basel III: A global regulatory framework for more resilient banks and banking systems},
  author = {Basel Committee on Banking Supervision},
  year = {2011},
  institution = {Bank for International Settlements},
  url = {https://www.bis.org/publ/bcbs189.htm}
}

Interprets the 2007-2008 panic as a run on the repo market supporting securitized banking. Using data on securitized bonds, repo rates, haircuts, and credit spreads, the paper traces how concerns about collateral value and counterparty risk transmitted stress beyond subprime housing assets.

Gary Gorton and Andrew Metrick. "Securitized Banking and the Run on Repo." Journal of Financial Economics, 2012.

@article{Gorton2012Securitized,
  title = {Securitized Banking and the Run on Repo},
  author = {Gary Gorton and Andrew Metrick},
  year = {2012},
  journal = {Journal of Financial Economics},
  doi = {10.1016/j.jfineco.2011.03.016},
  url = {https://doi.org/10.1016/j.jfineco.2011.03.016}
}

Argues for substantially stronger bank equity requirements and challenges common claims that higher equity capital is socially too costly. The book connects bank leverage, fragility, subsidies, risk-taking incentives, and the political economy of financial regulation.

Anat Admati and Martin Hellwig. "The Bankers' New Clothes: What's Wrong with Banking and What to Do about It." Princeton University Press, 2013.

@book{Admati2013The,
  title = {The Bankers' New Clothes: What's Wrong with Banking and What to Do about It},
  author = {Anat Admati and Martin Hellwig},
  year = {2013},
  publisher = {Princeton University Press},
  url = {https://press.princeton.edu/books/hardcover/9780691156842/the-bankers-new-clothes}
}

Provides international standards for resolution regimes intended to handle failing financial institutions without severe systemic disruption or taxpayer bailout expectations. The document is central for studying resolution authority, loss allocation, and financial-stability governance.

Financial Stability Board. "Key Attributes of Effective Resolution Regimes for Financial Institutions." Financial Stability Board, 2014.

@article{Board2014Key,
  title = {Key Attributes of Effective Resolution Regimes for Financial Institutions},
  author = {Financial Stability Board},
  year = {2014},
  journal = {Financial Stability Board},
  url = {https://www.fsb.org/2014/10/r_141015/}
}

Develops a measure of each financial firm's contribution to systemic risk based on expected capital shortfall in a crisis. The paper connects firm-level leverage, size, and marginal expected shortfall to the expected undercapitalization of the financial system.

Viral V. Acharya, Lasse H. Pedersen, Thomas Philippon, and Matthew Richardson. "Measuring Systemic Risk." Review of Financial Studies, 2017.

@article{Acharya2017Measuring,
  title = {Measuring Systemic Risk},
  author = {Viral V. Acharya, Lasse H. Pedersen, Thomas Philippon, and Matthew Richardson},
  year = {2017},
  journal = {Review of Financial Studies},
  doi = {10.1093/rfs/hhw088},
  url = {https://academic.oup.com/rfs/article-lookup/doi/10.1093/rfs/hhw088}
}

Examines the European Securities and Markets Authority as a central actor in EU financial-market governance. The book analyzes ESMA's rule-making, supervisory convergence, direct supervision, network role, institutional design, technocratic influence, effectiveness, and legitimacy in the post-crisis and Brexit-era regulatory setting.

Niamh Moloney. "The Age of ESMA: Governing EU Financial Markets." Hart Publishing, 2018.

@book{Moloney2018The,
  title = {The Age of ESMA: Governing EU Financial Markets},
  author = {Niamh Moloney},
  year = {2018},
  publisher = {Hart Publishing},
  url = {https://www.bloomsbury.com/uk/age-of-esma-9781509921775/}
}

Organizes financial-stability regulation around market failures that trigger and transmit shocks rather than around isolated institutions or punitive responses. The article offers a coherent framework for evaluating macroprudential tools.

Steven L. Schwarcz. "Systematic Regulation of Systemic Risk." Wisconsin Law Review, 2019.

@article{Schwarcz2019Systematic,
  title = {Systematic Regulation of Systemic Risk},
  author = {Steven L. Schwarcz},
  year = {2019},
  journal = {Wisconsin Law Review},
  url = {https://scholarship.law.duke.edu/faculty_scholarship/4583/}
}