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The Economists' Voice 2.0The Financial Crisis, Health Care Reform, and More$
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Joseph Stiglitz and Aaron Edlin

Print publication date: 2014

Print ISBN-13: 9780231160155

Published to Columbia Scholarship Online: November 2015

DOI: 10.7312/columbia/9780231160155.001.0001

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It Works for Mergers, Why Not for Finance?

It Works for Mergers, Why Not for Finance?

(p.115) Chapter 14 It Works for Mergers, Why Not for Finance?
The Economists' Voice 2.0

Aaron S. Edlin

Richard J. Gilbert

Columbia University Press

The recent financial crisis has launched a wave of proposals to reform the financial sector to prevent a recurrence. Most, though, are either unlikely to have much of an effect on systemic financial risk or are too complex to be implemented successfully. This chapter proposes an intermediate approach that borrows from experience with mergers. Merger activities are reviewed by the U.S. Department of Justice (DOJ) and the Federal Trade Commission (FTC) to detect mergers that may raise prices. Under the Hart-Scott-Rodino Act, all proposed mergers that exceed a threshold value must be reported to the FTC. The details of the proposed merger are then reviewed by either the DOJ or the FTC, which can challenge the merger or negotiate modification of its terms. A similar system for the financial industry would require all financial firms, whose liabilities exceed some size threshold, to provide detailed reports of their financial structure and major assets and liabilities. There will also be a standard preventing firms from creating “substantial systemic risk,” that is, the kind of risk that is likely to cascade through financial markets.

Keywords:   financial regulation, financial reform, financial risk, financial crisis, mergers, Hart-Scott-Rodino Act, systemic risk

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