David Skeel's New Financial Deal

I am reading with great interest my friend David Skeel's wonderful new book The New Financial Deal: Understanding the Dodd-Frank Act and Its (Unintended) Consequences. My main complaint so far is that it largely ignores the corporate governance pieces of the Act, although in fairness those are small pieces and, in any event, leaves room for my book Corporate Governance After the Crises, due out in the fall from Oxford University Press.

My review should be up soon. In the meanwhile, here's a taste of a review by David Zarig of The Conglomerate:

David Skeel's New Financial Deal (in an earlier post, I told you that his broad perspective on what is the first scholarly book out about Dodd-Frank may be thought of as Jacksonian/Tory), is, in large part, a story of the advantages of bankruptcy over resolution authority – the two alternative ways of dealing with insolvent banks.  Dodd-Frank, of course, chose to double down on resolution authority, and Skeel thinks that bankruptcy is the better way to handle bank restructurings. ...

Two nice things that Skeel does in the book is to identify two objectives to think about with DF.  He says the statute’s

• "first objective is to limit risk before the fact – before an institution or a market collapses. []  The second objective is to limit the destruction caused in the event that is systemically important institution does indeed fail, despite everyone's best efforts to prevent that from happening."

If those are the goals of DF, Skeel is concerned that rather less salubrious themes have also emerged from the legislation:

• "The two themes that emerge, repeatedly and unmistakably, from the 2,000 pages of legislation are (1) government partnership with the largest financial institutions and (2) ad hock intervention by regulators rather than a more predictable, rules-based response to crisis."

Also at The Conglomerate, Usha Rodrigues writes:

I just finished David Skeel's new book, The New Financial Deal, and my advice is: read this book.  Its subtitle promises "Understanding the Dodd-Frank Act and its (Unintended) Consequences," and it delivers.  Skeel is a bankruptcy expert at Penn Law, and he views Dodd-Frank through the prism of bankruptcy.  I admit that I'm still in the stage of digesting Dodd-Frank, thinking through its ramifications, and awaiting the myriad regulations that will flesh it out.   Short, crisp sentences, a bullet-pointed introduction to each chapter, and references that bounce from Churchill to baseball to the Bible make The New Financial Deal a great introduction to the mechanics of Dodd-Frank.  The book is admirably lean (clocking in at a mere 193 pages), filled with muscular prose and emphatically not written in typical legal scholarese. 

Skeel starts from the premise that bankruptcy works.  We should have relied on it more during the financial crisis of 2008, Dodd-Frank is flawed because it rejects bankruptcy principles, and that the solution is...a little more bankruptcy.  Whether or not you agree with Skeel's bankruptcy-centric view of the world, his argument functions as a plot, allowing him to relate the provisions to one another in a coherent narrative.

This is an important book and essential reading for anyone with an interest in our financial markets.