Law as a Registered Designation of Origin: The Case of Financial Law

Abstract

Starting from the “Law and Finance” theory, this paper reverts its argument. Rather than demonstrating the superior economic efficiency of UK-US financial law, this paper explores how, in the past two decades, the financial industry, and especially the securities and bonds markets, has experienced a growing trend towards an implicit vertical integration due to the legal framework enforced by its actors. This legal framework plays very much the same role as a “registered designation of origin” mechanism. As in the agricultural and food industry, the legal framework helps building barriers to entry and integrating the different actors of the value chain. This “hybrid organization” model can be identified from originating banks to legal and accounting consultants, rating agencies, investment funds, etc. The movement towards delegation of the rule making function to private entities has greatly helped to establish this model – let alone to produce it. Such a delegation approach helped to spread it all over the world, especially across the Atlantic. In order to identify this pattern, this paper mobilizes several analytical approaches: the economics of technical standards applied to law and the legal analysis of financial law and regulation, the “hybrid organization” model from New institutional economics, the economic analysis of self regulation and its potential effects on competition. It relies on observations of the positive legal framework and its evolution, as applied to several segments of the financial markets (mainly securitization and loan syndication).As a conclusion, this analysis may contribute to explain some causes of the current financial crisis, at least of its magnitude.