White Papers

WIFPR commissions white papers from leading and emerging scholars from a variety of disciplines to create new work accessible to interdisciplinary audiences with relevance to financial policy and regulation.

Joshua C. Macey – Market Power and Financial Risk in U.S. Payments Systems

This White Paper argues that there is an unavoidable trade-off between regulations that would reduce risk to the financial system and those that would reduce the market power of the firms that control the interbank payments infrastructure in the United States. Regulatory and economic features of payments systems mean that regulators can (1) entrench bank market power, (2) accept a new source of systemic risk, or (3) expand the financial safety net beyond the bank regulatory perimeter. Recognizing that a private payments system involves a policy trade-off between bank market power and the safety and soundness of the financial system provides support for considering public payments options like the Federal Reserve’s “FedNow” or a well-designed central bank digital currency.

Robert Jackson and John Morley – SPACs as Investment Funds

This essay argues that SPACs bear a striking resemblance to investment funds. SPACs invest in the same assets as investment funds, putting all of their money into securities as they search for deals. And they adopt the same pattern of organization as investment funds, relying entirely on management by external sponsors and advisers, many of whom also manage investment funds. This resemblance creates in SPACs many of the same unique agency conflicts that the regulation of investment funds was designed to address. In fact, we argue that many SPACs have been violating the Investment Company Act of 1940, the main law that governs investment funds. We show that soon after we filed a series of lawsuits alleging that some SPACs were violating the ICA in August 2021, new SPACs significantly changed their practices in ways that reduced their risk under the statute. We offer some suggestions to improve the SEC’s recent proposal to address the status of SPACs under the ICA and show how the proposal can help to protect investors.

Christina Parajon Skinner – Confronting the Challenge of Cross-Border Payments: A US Strategy for Central Clearing KYC

For the past two years, the international community of financial regulators has been intently focused on improving the efficiency of cross-border payments.  To date, this work has taken a wide lens in scoping the problem.  This white paper focuses on what the U.S. could contribute to the cross-border payments initiative.  It argues that the bulk of inefficiency in the current legacy system—corresponding banking—derives from frictions associated with anti-money laundering law and regulation.  To streamline the process of conducting customer due diligence, specifically, the paper proposes moving toward a system of centralized verification.  In particular, the paper sketches an idea for a new kind of payments market infrastructure—a centralized verifying party—that would act as a trusted, third-party intermediary verifying transacting parties within correspondent networks.