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11 Harv. Bus. L. Rev. 193 (2021)
Protecting Financial Stability: Lessons from the COVID-19 Pandemic

handle is hein.journals/hbusrew11 and id is 205 raw text is: PROTECTING FINANCIAL STABILITY: LESSONS FROM THE COVID-19 PANDEMIC HOWELL E. JACKSON & STEVEN L. SCHWARCZ* ABSTRACT The COVID-19 pandemic has produced a public health debacle of the first order. But the virus has also propagated the kind of exogenous shock that can precipitate-and to a certain degree did precipitate-a systemic event for our financial system. This still not fully resolved systemic shock comes a little more than a decade after the last financial crisis. In the intervening years, much has been written about the global financial crisis of 2008 and its systemic dimen- sions. Considerable scholarly attention has focused on first devising and then critiquing the macroprudential reforms that ensued, both in the Dodd-Frank Act and the many regulations and policy guidelines that implemented its provisions. In this essay, we consider the coronavirus pandemic and its implications for the financial system through the lens of the frameworks we had developed for the analysis of systemic financial risks in the aftermath of the last financial crisis. While the COVID-19 pandemic differs in many critical respects from the events of 2008, systemic events in the financial sector have a common structure rele- vant to both crises. Reflecting back on responses to the last financial crisis also affords us an opportunity both to understand how financial regulators re- sponded to the COVID-19 pandemic and also to speculate how the pandemic might lead to further reforms of financial regulation and other areas of public policy in the years ahead. TABLE OF CONTENTS PREFACE ....................................................... ..194 I. SYSTEMIC RISK AND THE LAST FINANCIAL CRISIS ........... 195 II. TODAY'S PANDEMIC VERSUS THE SOURCES OF THE LAST FINANCIAL CRISIS ........................................ .196 * Howell Jackson is the James S. Reid, Jr., Professor of Law, Harvard Law School. Steven Schwarcz is the Stanley A. Star Distinguished Professor of Law & Business, Duke University School of Law, and Senior Fellow, the Centre for International Governance Innovation (CIGI). An early draft of this essay, titled Pandemics and Systemic Financial Risk, was posted in April 2020. See Howell E. Jackson & Steven L. Schwarcz, Pandemics and Systemic Financial Risk (Duke Law School Public Law & Legal Theory Series, Working Paper No. 2020-26, 2020), https://papers.ssm.com/sol3/papers.cfm?abstractid=3580425. This published version speaks, for the most part, as of December 31, 2020, supplemented to a limited degree with references to some publications and events that occurred in the first few months of 2021. In preparing this essay, we benefited greatly from discussions shared on Peter Conti-Brown's estimable FinReg Listserv as well as postings to the Davis Polk FinReg Blog. For valuable comments and suggestions, we thank Anat Admati, Tony Casey, Peter Conti-Brown, Matthias Haentjens, Louis Kaplow, Lev Menand, Barak Richman, Steve Shavell, David Skeel, Christina Skinner, Meg Tahyar, Dan Tarullo, and participants in (virtual) law-and-economics workshops at Harvard Law School, the University of Bonn/Max Planck Institute for Research on Collec- tive Goods, and the Wharton Financial Regulation Summer Workshop. We are also enor- mously grateful to Theodore L. Leonhardt and Emma Wheeler, both Duke Law School Class of 2020, for truly extraordinary and invaluable research assistance.

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