The Common Agency Problem in Bank Regulations, featuring Yesha Yadav, Professor of Law, Vanderbilt University School of Law

Following the financial crisis, regulation requires banks to fund themselves more fully by issuing equity. When a bank fails, deep equity reserves provide a cushion of capital to pay-off depositors and creditors and stop a bank’s collapse from causing wider disruption. In requiring banks to build their equity base, however, policymakers have failed to ask a critical question: who supplies this equity funding in practice? In other words, which shareholders are assuming the default risk of large and complex banking firms and do these shareholders possess the resilience to absorb the risks they take on?

This talk aims to respond to this question. It will describe the ownership of the 25 largest U.S. banks, to show that post-Crisis U.S. big bank ownership has come to be characterized by an increasing number of blockholders, those holding 5% or more in common equity. In addition, these block stakes are now held, in large part, by the same group of shareholders: BlackRock, Vanguard, Fidelity, State Street Global Advisors and T. Rowe Price – managing funds that represent the retirement and other savings of a swath of Main Street homes and businesses.

Ultimately, the aim of this talk lies in addressing the political economy of financial failure to determine whether those shareholders who contract to bear the default risk of financial firms, in fact, possess the institutional capacity to do so. In other words, can they provide the much needed buffer to protect the financial system against systemic collapse - or are these shareholders themselves now too big and too important to fail?

Space for this event is limited, so RSVP today to reserve your seat at http://go.unl.edu/yeutterinstituteevent