financial crisis, systemic risk, financial regulation, mortgage-backed securities, bailouts
Ideal financial regulation would work ex ante, to prevent financial failures. Once a failure occurs, there may already be economic damage, and it may be difficult to stop the failure from spreading and becoming systemic. The reality, though, is that preventing financial failures should be only one role for regulators. Even an optimal prophylactic regulatory regime cannot anticipate and prevent every failure. This paper, which formed my Chapman Dialogue Address at Chapman University School of Law and the keynote speech at Chapman Law Review’s 2011 Symposium on the Future of Financial Regulation, attempts to contrast fundamental differences between ex ante and ex post financial regulation. It also illustrates how ex post approaches can, and arguably should, supplement ex ante approaches as part of a comprehensive financial regulatory framework.
Steven L. Schwarcz, Chapman Dialogue and Law Review Symposium Keynote Address: Ex Ante Versus Ex Post Approaches to Financial Regulation, 15 Chapman Law Review 257-269 (2011)