The future in law and finance

Finance is all about the future. The success of a capitalist economy
rests upon the ability of finance to sustain potentially infinite growth,
based on funding today the output of tomorrow. Finance, however,
needs rules. The aim of the law and finance scholarship is precisely to
identify the best regulation of finance to support economic growth.
Traditionally, law and finance is concerned with investor protection.
This would be sufficient if the future was predictable. However,
because the future is in fact uncertain, the prices of financial assets
are flawed and in the short run they may result in serious mistakes, if
not widespread crises. Although these mistakes are corrected in the
long run, a lot of harm may occur in the meantime.

Drawing on the experience from the global financial crisis, in this lecture
it is argued that financial law should be concerned not only with
investor protection, but also with mitigating the temporary excesses of
markets in allowing or restricting access to finance. The challenge of
this goal is to remedy market malfunctioning without undermining
market discipline. However imperfect, prices remain the best instrument
of discipline and growth in a market economy.

Several policy implications may be derived from this approach. This
lecture focuses on the unique role of central banks in regulating liquidity
and on how corporate governance can fill in the gaps of banking
regulation in the face of uncertainty.