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49 J. Corp. L. Digit. 1 (2024)

handle is hein.journals/jcldgtl49 and id is 1 raw text is: We Need a New Glass-Steagall Act to End the Toxic Symbiosis Between Universal Banks and Shadow Banks, Which Professor Corrigan Has More Fully Revealed Arthur E. Wilmarth, Jr.* INTRODUCTION ................................................................................................................... 2 J.INTERNAL AND EXTERNAL SHADOW BANKS POSE SYSTEMIC THREATS TO OUR FINANCIAL SYSTEM, ECONOMY, AND SOCIETY ................................................... 4 A. Prior to the Global Financial Crisis of 2007-09, Universal Banks Used Internal Shadow Banking Affiliates to Evade Prudential Rules Governing Banks and Investm ent Com panies.................................................................. . 4 B. Prior to the Global Financial Crisis, External Shadow Banks Used Deposit Substitutes to Perform Core Bank Functions Without Complying with Prudential Rules Governing Banks .............................................................. . 8 C. Universal Banks and External Shadow Banks Created Enormous Risks During the Global Financial Crisis and Received Huge Bailouts ................ 11 D. Universal Banks and External Shadow Banks Have Expanded Significantly Since 2009 and Pose Grave Threats to Financial and Economic Stability........ 13 1. Universal Banks and External Shadow Banks Have Grown Rapidly S in ce 2 0 0 9 .............................................................................................. . 14 a. The Central Roles of Broker-Dealers, MMMFs, and Hedge Funds ..... 15 b. The Rapid Growth of Private Equity Firms........................................ 17 2. Universal Banks and Shadow Banks Have Contributed to a Series of Financial Disruptions Since 2019 and Pose Grave Dangers to Financial and Econom ic Stability .......................................................................... . 21 a. The Repo Crisis of September 2019 .................................................... 21 b. The Pandemic Crisis of 2020-21....................................................... 22 c. The 2023 U.S. Regional Banking Crisis .............................................. 25 d. The Downfall of Credit Suisse ........................................................... . 30 IIWE NEED A NEW GLASS-STEAGALL ACT TO REMOVE THE ENORMOUS THREATS POSED BY UNIVERSAL BANKS AND SHADOW BANKS ......................................... 34 A. Professor Corrigan's Proposed Reforms Are Promising, But They Do Not Break up Universal Banks or Prohibit Nonbanks from Issuing Shadow Deposits...... 35 B. We Need a New Glass-Steagall Act to Eliminate the Unacceptable Dangers Created by Universal Banks and Shadow Banks........................................... 37 CONCLUSION..................................................................................................................... 40 * Professor Emeritus of Law, George Washington University Law School. I would like to thank the editors of the Journal of Corporation Law for their excellent work in editing this article. I am also very grateful to Germaine Leahy, Head of Reference for the Jacob Burns Law Library at GW Law School, for her superb research assistance. Unless otherwise indicated, this Article includes developments through March 1, 2024.

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