| Abstract |
The court below erred in finding that the lack of explicit binding language or threats from the New York Department of Financial Services in its guidance letters meant that no reasonable regulated firm would consider itself bound by those letters. The reality of banking and insurance regulation is that firms frequently feel that they risk sanction if they do not comply with nominally non-binding guidance.Further, the use of guidance and reputation risk as tools of regulation has shown itself to enable abuses where regulators sought to enforce their policy preferences, rather than the law, under the guise of protecting the safety and soundness of regulated financial firms. Finally, the nature and logic of reputation risk regulation, even if applied by a neutral regulator, enables a regulator-enforced “economic hecklers veto” by parties with sufficient economic power over a regulated firm. |
