In Fateful Bankers, Professor Zaring describes the strengths of Professor Omarova's article, that it does not overly rely on heavy‐handed outside regulation of the financial industry but could still appeal to those who believe the industry needs “stringent oversight.” Zaring also notes the benefit of relying on regulation by those with the most up‐to‐date information about the industry—industry itself. Zaring then offers five critiques of Omarova's position. First, Zaring worries this model could lead to greater barriers to entry for the industry and have anticompetitive effects. Second, he suggests that unlike an industry where the community is based on concern that public condemnation of one firm leads to condemnation of the entire industry, here insolvency at one firm leads to insolvency at others—a real difference from the nuclear or chemical industries Omarova uses as examples. Third, Zaring is skeptical that a threat from government regulators will really create cohesion when in past crises the government has been perceived as unwilling to act on the threat. Fourth, Zaring criticizes Omarova's precondition of dividing the financial industry between wholesale and resale, and fifth, Zaring questions whether insurance will really deter behavior or be written off as a cost of doing business.
- David Zaring
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- Assistant Professor of Legal Studies, The Wharton School of the University of Pennsylvania.