Nizan Geslevich Packin’s research while affiliated with Baruch College and other places

Despite considerable recent legislative attention to risk management, including the passage of the Dodd-Frank Act, excessive risk-taking by financial institutions is still rampant. Risk-related decision makers do not make decisions about risk-taking in a vacuum, but in an environment where multiple factors, noticed and unnoticed, can influence the decisions. Such factors include cognitive-related biases and group-related biases. And there are tools, which have not yet been analyzed in literature that regulators can use to reduce undesired or excessive risk-taking. Indeed, by shaping such environmental factors in which risk-related decisions in financial institutions are made, regulation can help actors make better, less pro-risk-taking, choices. With the goal of reducing excessive risk-taking by financial institutions, this article builds on an emerging focus in behavioral law and economics on prospects for “debiasing” actors through the structure of legal rules. Under this approach, legal policy may reduce biases’ effects and judgment errors by directly addressing them. Doing so will then help the relevant actors either to reduce or to eliminate these effects and errors. Accordingly, the article suggests using behavioral economic-based legal guidelines to supplement the Dodd-Frank Act‘s risk management provisions, and specifically the requirement that financial institutions create separate risk committees. Such legal guidelines would help reduce the degree of biased behavior that risk committees exhibit.The legal guidelines proposed in the article focus on the composition, obligations and work procedures of the financial institutions’ newly mandated risk committees. These guidelines provide behavioral incentives that will not only help reduce excessive risk-taking, but may even raise social responsibility awareness, while not compromising financial institutions’ legal and financial responsibilities. The article uses JPMorgan’s 2012 multi-billion dollar loss and MF Global’s collapse in 2011 as case studies for certain behavioral effects and biases that are relevant in the context of risk-taking. Within the context of these two events, the article analyzes the impact that diversity has on group dynamics; the influence that prior experiences and internal honesty standards can have on decision makers; the choice shift phenomenon; the illusion of control; the framing effect; the impact of accountability; the impact that the association of risk with potential disastrous outcomes has on decision makers; the familiarity bias; and the hindsight bias. As demonstrated in the article, the proposed guidelines, which address these biases, could have helped avoid — or at least mitigate the damages from — the great JPMorgan losses and the MF Global collapse.

The Dodd-Frank Act’s “living will” requirement mandates that systemically important financial institutions develop wide-ranging strategic analyses of their business affairs, and submit comprehensive contingency plans for reorganization or resolution of their operations to regulators. The goal is to mitigate risks to the financial stability of the U.S. and encourage last-resort planning, which will allow for a rapid and efficient response in the event of an emergency. Beyond the general framework set forth in the Dodd-Frank Act, very little is known about living wills; no legal literature currently exists on what the concept entails, and regulators have not yet finalized any rules that detail how living wills will operate. Nevertheless, living wills are perceived to be a successful regulatory solution to the problems highlighted by the recent financial crisis. Accordingly, nine of the world's biggest financial firms submitted to the regulators, and gave the public a peek at, their living wills in July 2012, as required by the new regulation. This article focuses on two issues. First, the article examines the implementation and operation of living wills for systemically important financial institutions. Second, the article presents the problematic aspects of living wills, and how they can lead to the failure of even the most ideally planned living wills, including: (i) the difficulty in identifying and predicting risk; (ii) the failure to solve the too-big-to-fail problem; (iii) the failure to solve the cross-border insolvency problem; (iv) the costs associated with living wills; (v) the confidentiality problem; (vi) the potential failure of the living wills solution in a market-wide crisis; (vii) the problem of creating a false sense of security; (viii) the problem of contingency planning in a vacuum; (ix) the problems resulting from regulator intervention; and (x) the issue of liability and the difficulty in getting SIFI board approvals. The article concludes that living wills are merely a disclosure requirement with high expectations, but only limited power; accordingly, they should not be perceived as a comprehensive, satisfactory regulatory solution to the too-big-to-fail problem.

Recent studies show that one in eight American couples suffered from infertility. Infertility treatments are riddled with accessibility barriers including high costs, marital status, and sexual orientation. Despite President Obama’s promise of universal health care, his health care reform acts missed the opportunity to squarely address this widespread problem. In fact, the recent health care reform did not include any provisions specific to fertility. Despite this glaring oversight, this article argues that regulators interpreting the acts can still provide the desired relief. The minimum coverage requirements beginning in 2014 can be interpreted to include fertility care if infertility is treated as a recognized medical condition (as it should be). Despite various potential ideological objections, mandating coverage for infertility treatment will advance four highly desired policies: (i) the promotion of gender equality; (ii) the promotion of a desired health related policy; (iii) the promotion of social justice; and (iv) the promotion of a desired medical related policy.