The Impact of the Financial Crisis on the Law and the Legal Profession

Abstract

The paper aims to describe the impact of the current financial crisis on the law and the legal profession. The financial crisis has unfolded and become publicly visible in the second half of 2007 with the issues around subprime, has then developed further into a global financial crisis in 2008 with financial services firms experiencing write-downs of illiquid assets, and leading to the disappearing of Bear Stearns, Lehman Brothers, Merrill Lynch and the transformation of Morgan Stanley and Goldman Sachs, as well as a series of unprecedented state intervention measures across the globe.The crisis is certain to have direct and indirect impact on the financial services industry, namely its strategic direction, corporate governance, and regulation. These developments will carry an impact on both the law and the legal profession in the financial services industry. The paper strives to analyze such impact and to anticipate possibilities to cope with it.The main findings are: – the root cause for the crisis consist of macro-economic reasons on one hand, and of the fundamental failures of conventional corporate governance, co-sponsoring by law and regulation and certain shortcomings in culture and mindset on the other hand; – the crisis will have an impact on the financial industry and its strategy (and may potentially lead to structural changes), on corporate governance, and on law and regulation. The obvious risk is that lawmakers and regulators could embark on launching a wave of regulation, that might already plant the seeds for future failures; – the legal function of financial services firms will have to adapt and prepare for such changes. The portfolio of activities and responsibilities of the function will increase, and so will the role and the profile of the legal function. It is now the time for the legal profession to step up and take ownership in many of the current hot topics.The Appendices are factual background information, designed to underpin the basis for the conclusions in the body of the paper. They constitute optional reading.