Financial regulation courses should look more at liabilities – Tarullo

Academics teaching financial regulation law should place "much more emphasis on the liability side" of financial institutions' balance sheets, Daniel Tarullo said on October 21.

The member of the US Federal Reserve board of governors was speaking at the New Pedagogy of Financial Regulation Conference at the law school of Columbia University in New York. He noted that he had not taught financial regulation law "since the interesting months of the fall 2008 semester".

Traditional banking law casebooks had left the subject of liabilities "largely untouched", Tarullo noted. But the global financial crisis had been, "at least in its more virulent periods, as much a funding crisis as it was a solvency crisis".

Funding and liquidity problems "accordingly deserve something close to the attention devoted to capital if students are to understand the origins of the crisis, the regulatory response, and the challenges of regulation going forward", he argued.

Tarullo also said that teachers of financial regulation should consider basing their courses around "a point of reference" to which students could return throughout their studies. The discussion of the status of banks between Gerald Corrigan and Richard Aspinwall, he said, could provide "a conceptual anchor for a banking law course".

Although the debate was more than 30 years old, he said, it might still "profitably introduce a course that ventures well beyond traditional banking regulation, by its invitation to consider why we regulate in the first place".