Issue 3

Information Gaps and Shadow Banking

This Article argues that information gaps—pockets of information that are pertinent and knowable but not currently known—are a byproduct of shadow banking and a meaningful source of systemic risk. It lays the foundation for this claim by juxtaposing the regulatory regime governing the shadow banking system with the incentives of the market participants who populate that system. Like banks, shadow banks rely heavily on short-term debt claims designed to obviate the need for the holder to engage in any meaningful information gathering or analysis. The securities laws that prevail in the capital markets, however, both presume and depend on providers of capital to perform these functions. In synthesizing insights from diverse bodies of literature and situating those understandings against the regulatory architecture, this Article provides one of the first comprehensive accounts of how the information-related incentives of equity and money claimants explain many core features of securities and banking regulation.

The Article’s main theoretical contribution is to provide a new explanation for the inherent fragility of institutions that rely on money claims. The existing literature typically focuses on either coordination problems among depositors or information asymmetries between depositors and bank managers to explain bank runs. This Article provides a third explanation for why reliance on short-term debt leads to fragility, one which complements the established paradigms. First, information gaps increase the probability of panic by increasing the range of signals that can cast doubt on whether short-term debt that market participants had been treating like “money” remain sufficiently information insensitive to merit such treatment. Second, information gaps impede the market and regulatory responses that can dampen the effects of a shock once panic takes hold. Evidence from the 2007–2009 financial crisis is consistent with the Article’s claims regarding the ways shadow banking creates information gaps and how those gaps contribute to fragility.

“Spiritual But Not Religious”: Rethinking the Legal Definition of Religion

Through the statutory mechanisms of RFRA and RLUIPA, Free Exercise jurisprudence has expanded the scope of religious protection. In the absence of a clear legal definition of religion, however, this protection has an unknown and biased reach. In particular, courts and legal scholars embody a misunderstanding of a burgeoning group of Americans who identify as “spiritual but not religious,” excluding them from religious protection. This Note uses a recent case, which dismissed as nonreligious the beliefs of a plaintiff whose beliefs are paradigmatic of this growing cohort, to analyze how the law defines religion. It argues that while such belief systems reject the institutional characteristics of organized religion, they are sufficiently analogous to religious belief systems to deserve the same legal protection.

Judicial Capacity and Executive Power

The budget of the United States executive branch is roughly 500 times greater than that of the judicial branch. The executive workforce is more than fifty times greater. How do these enormous disparities affect the practical ability of courts to police executive power? Our judicial capacity model of Supreme Court decision making is the first attempt to take this question seriously. Briefly, in most executive power domains, the limits of judicial capacity create strong pressure on the Supreme Court to adopt hard-edged categorical rules, defer to the political process, or both. The reason is straightforward. In these domains, a departure from deferential or rule-based decisions would invite more litigation than the Court could handle without sacrificing minimum professional standards.

Our model explains why the Supreme Court has historically deferred to congressional delegations of power and avoided interfering with presidential administration, despite significant ideological temptations to intervene. It also explains the few areas of executive power in which the Court has been willing to act aggressively, as well as the one area in which the Court has employed indeterminate standards—as opposed to categorical rules—to invalidate government action. In so doing, the judicial capacity model clarifies when, if at all, it is sensible to urge the courts to constrain executive power in future cases. Finally, the judicial capacity model sheds light on some of the most significant issues in constitutional theory, including judicial competence, judicial independence, and the formalist-functionalist divide over separation of powers. For all of these reasons, judicial capacity deserves a central place on the agenda of executive power scholarship and constitutional theory more generally. 

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