January 9, 2012
by Annelise Riles
1 Comment

Broadening the field of financial regulation

Stock DataThis morning I participated in a fantastic panel at the American Association of Law Schools organized by Anna Gelpern and Eric Gerding on the state of legal scholarship about financial institutions. The question the organizers asked is, what is the most pressing focus for the field today?
I argued that we need to significantly broaden the field–its subject, its methods, and the range of debates it is addressing at the moment.


In this post, I will focus on Broadening the Subject:
  • Research needs to become far more seriously comparative. Dodd Frank is not the only thing happening in the world, people!  Elsewhere, very different solutions, different models of market regulation are being developed–and indeed there are different views of what the key problems are.  American scholars pay lip service to the globalization of financial regulation but too often focus only on US and UK law and assume that issues elsewhere are either pretty much the same, or just behind the US and the UK in development. But the days of US and UK dominance are soon over.  The world is far more complicated and more interesting than this.
  • Research needs to become far more focused on international regulatory problems.  Most regulatory problems are now cross-jurisdictional in some sense or another.  This means that new international regulatory projects–from the Financial Stability Board to efforts to coordinate countries excluded from the Basel consensus–are increasingly important.  Yet how much do most scholars in the field of financial regulation know about international law and institutions? Too often we seem to be reinventing the wheel in that field, without taking advantage of the wealth of knowledge about what works and doesn’t work in international institutions in analogous fields. (Stay tuned for my forthcoming paper on this)
  • We need to pay more attention to forms of regulation outside the purview of traditional state institutions.  As I argue in Collateral Knowledge, most market governance is not state-based. It is initiated and conducted by private parties.  How does this work? When does it work and when does it not? How does it interact with state regulation?
  • We need to focus much more on the politics of market regulation–on the changing political climate in which financial regulation is being produced, the differences in this climate in different jurisdictions, and its impact on the policy options available to regulators, the culture/esprit de corps among regulators, the ability to recruit top talent to the bureaucracy, and indeed the zone of what regulators imagine as possible.  Just as internationalizing the field demands reaching out to international law scholars, politicizing the field means reaching out to political scientists and scholars of law and politics working in other domains of law.
  • We need to pay attention to the ways in which the field of finance is always expanding to include other subjects. For example, markets in energy products bring finance into conversation with environmental law and politics, and financial crises and environmental crises mutually influence each other in many ways.
Tomorrow I will take up how we might broaden the methods we use to study financial regulation and what debates deserve our central attention.

January 28, 2011
by Annelise Riles
1 Comment

Move Your Money and Beyond — Reforming Market Culture From the Bottom Up

(this post was originally published on Jan. 27, 2011 in the business section of the Huffington Post website. Link)

There’s a glaring omission in all the talk over financial reform, the question of whether legislation goes far enough to rein in the bad behavior that led the economy off the precipice.

As an anthropologist who has spent ten years studying financial markets from the inside, I have learned that reforming market culture is as crucial as any regulation. And we all have a duty to change the culture. “Move Your Money” may be your first effort, but it shouldn’t be your last.

What we found during the financial crisis is that the most agile players (like those of Janine Wedel’s Shadow Elite) can get around regulations and legislation, in part, by influencing the culture. They encourage deference to anonymous expert opinion–a sense that markets are something far away from the ordinary person’s experience or ability to understand, and hence are best left to the shadow elite themselves. And they help normalize shady activities, like, say, so-called “liar loans”, things banned on the books, and even actively enforced as illegal, but not considered entirely wrong by ordinary people. The result is that the government can’t prosecute violations fast enough and illegal behavior nevertheless continues.

Thus, changing policies or even laws has an impact, but they won’t do the job alone. Reforming culture is what’s needed, and that is best supported by social movements made up of people of all types — ordinary citizens, market professionals, people inside government who believe in the cause and are not just pursuing the policy because it is their job.

So what should we do?

If you are an ordinary investor, someone who has a 401k, or a bank account, or a loan, or a credit card, you should consider, as Arianna Huffington has suggested, moving your money out of big banks whose policies you do not support. You also have a responsibility, as a citizen, to educate yourself about how the economy works, who are the players, what are the policy proposals.

If you are a regulator, or in a position to influence a regulator, don’t be afraid to listen to voices, opinions or suggestions that have not been historically at the table. Former Commodity Futures Trading Commission chair Brooksley Born or FDIC Chair Sheila Bair were considered out of touch when they engaged in aggressive regulation efforts. Had we acted on their warnings, the financial crisis might well have been greatly mitigated.

If you are a stock broker, lawyer, banker, analyst, a paralegal, or bank clerk, you have a special role to play in changing market culture. In my experience such people from the bottom to the very top often claim that they are just cogs in the wheel, and yet they have tremendous latitude to make very small changes–to push for option A over option B, both of which are plausible alternatives for their organization but one of which might steer a slightly better course for the economy as a whole. These are the changes that matter. If each person in such a position resolved to take small steps we would see dramatic change. These need not be altruistic steps; they need only be wiser actions that reflect a sense that, in the case of a bank loan administrator, for example, choosing not to foreclose immediately on a loan but to put in the extra hours on a Friday night to see if a solution can be worked out, takes commitment but might be good for the distressed homeowner, the bottom line and the economy as a whole.

If you are a neighbor, friend, or relative of one of these market professionals, you can let them know what you expect of them, let them know that you view them as stewards of a very important public good, our economy, and share with them why this matters to you personally. My research shows again and again that market players are motivated not only by money but also by what other people — their spouses, their children, their friends, their colleagues, their former classmates — think of them. They don’t want to be bad actors. They want to be respected and appreciated. Use your social influence to change market culture.

If you are part of the media, or in the education professions, you have an obligation to make the market understandable and accessible to citizens and not just to pander to insiders. You should encourage a conversation about the common good in markets.

And there are also some things that all of us can do, no matter who we are. No one is wholly disconnected from the market. You can behave in a responsible, ethical, constructive way — whether it is paying your babysitter fairly or living by your own obligations in your workplace or bringing your own spending under control. Every time we act based on an appreciation that our own long-term self-interest is tied up with the self-interest of others, we change our own corner of market culture.

All of this involves taking risks and making hard choices. If everyone in your company talks as if ordinary investors are bumbling fools who exist only to be taken advantage of, it is hard to begin to articulate the view that the firm also has a social obligation towards average investors. If all your friends are running up large credit card bills, it is hard to live within your means. If you are a bureaucrat who has qualms about dominant paradigms, it is hard to go against the group think and risk looking silly or ignorant. Moving your money might not be costly, but moving your talent to a company that upholds the common good could be a gamble.

So changing market culture takes courage. But my research convinces me that it is the only way forward. I liken it to efforts by citizens to clean up a decrepit park frequented by drug dealers. It’s time to pick up the trash left by the financial destruction, and challenge each other to clean up our acts.

January 7, 2011
by Annelise Riles

Building a Culture of Compliance

(This entry was originally posted on Jan. 7, 2011 on the Credit Slips website)

I was scheduled to speak at the AALS Financial Institutions breakfast this morning, but due to flight cancellations I was unfortunately unable to attend. I’m posting below a summary of what I intended to say there, and which I had already planned to share with the readers of Credit Slips anyway. I wanted to talk about what anthropological research among market participants and regulators tells us about how to change the way people behave in the financial markets.  After all, the whole point of regulation is just this–to change behavior. Yet how do you do it?

Of course you can make rules.  There has been a lively discussion on this blog about the value of rules, and I agree that rules have many benefits including their power to signal certain collective commitments: from now on, X behavior is not OK.  Yet rules also have a major disadvantage. Call it the cat and mouse game: as soon as regulators come up with a rule, some market participants start trying to find a way around that rule. For example, as soon as the G20 starts setting new capital adequacy requirements for banks, some investment banks start selling derivatives products that change the look of a balance sheet so that it seems to come into compliance with the new rules.  So then regulators invent another rule to close the loophole. And then market participants find another loophole. And on and on. Lots of wasted regulatory energy.But wouldn’t it be great if we could change the culture of the market–change the mindset of people in the market– so that they would choose to do the right thing all on their own? I mean to suggest that in order for regulation really to work, market participants have to be brought in; they have to feel they have a stake in good outcomes; their view of their own self-interest has to be in line with the larger collective interest.

This is of course the logic behind the idea of tailoring bonuses to long term results rather than short-term results. But one thing you learn from doing qualitative research in the financial markets that will surprise people on the outside is that market participants are not motivated entirely by money.  In fact I would go so far as to say that many of them are not motivated primarily by money. They care about all kinds of things–like having interesting, challenging work, like inventing something new or somehow making a mark that will last, like having meaningful relationships with friends and colleagues and family, like other symbolic forms of rewards ranging from industry recognition awards to academic publications. If this is the case, then bonus reform is a step in the right direction, but it is a pretty limited step.

In my presentation, I intended to talk about how Japanese financial regulators have grasped this point and have sometimes exploited it artfully.  Recognizing that many market participants actually have bigger dreams than a paycheck they have thrown them a line: join us and work with us to fix the market.  Regulators have created prestigious and competitive “fellowships” at the Bank of Japan, Japan’s central bank, for example, where market participants can come to do research, in daily conversation with regulators. The value of these fellowships is that they provide the opportunity for regulators to gather information, and they give both sides a chance to work out creative public-private solutions. But many fellowship recipients come away with an emboldened vision of their larger mission–not just to do well but also to do good, in their own corner of the market.  Likewise, informal “study groups” of academics, policy makers and key market participants serve as a forum for building trust and a shared sense of mission.  When disaster hits, I have seen policy-makers call on these relationships in very effective ways.

One of the lessons economic historians give us about the successes of the early years of the SEC is that the strong culture of professionalism at the SEC gave regulators the confidence, and the skills, to regulate effectively.  But professionalism, confidence and a sense of mission and wider purpose isn’t just for bureaucrats.  It can and does contribute to market stability and fairness in the private sector as well.  The anthropology of markets suggests that it is worth investing in building such a culture.

Anyone interested in more detail can download the slides that I had intended to show during my presentation this morning here.

March 1, 2010
by Annelise Riles
1 Comment


What role for legal professionalism?

At its core, the debate about financial reform is about how to change real people and their daily decisions–regulators, traders, consumers, and so on.  Is there a role for legal professionalism in this? How does day to day legal practice bring about change, and what kind of change can it bring about? What alternatives might these changes already be offering to the search for new regulatory architectures? And what about the motivations and ambitions of legal professionals ourselves–how do we keep going? How do we choose what course of action to take, given that the consequences of our actions can never be predicted entirely in advance?

We are not used to thinking about day to day legal practice–the mundane stuff of client relations, the technical stuff of document discovery or production–as the stuff of “stabilizing the markets and changing the world”. Ask most lawyers how they make a difference (or what is most exciting or stimulating about their professional lives) and they might instead point to other work they do, whether as pro bono advocates, or on rule-making committees, or as board members of other public interest causes.

  • Taking Individual Action:  Specific actions by legal professionals –to pursue one legal vehicle for a merger over another, to devote extra time to educating a client about best practices of document retention, to propose a different phrasing of company policy for the company’s website– have real market consequences that often go far beyond the particular issue or client at hand.  Put another way, how lawyers describe specific aspects of market institutions such as firms or regulatory schemes–in dealings with their clients, in filings, in training, mentoring and work on behalf of the profession, in management contexts–actually shape the nature of the market and the confidence of investors.  In a sense this is not news: most of us go into our work with the hope that it can have a positive effect.  But the role of lawyers is still too little acknowledged in discussions of financial stability.  And of course, if lawyers can make a difference for the better, they can also make a difference for the worse.  We will discuss how theories, vehicles and practices in financial law affected the crisis of 2008 what implications these have for each of our responsibility as professionals for promoting financial stability going forward. Lawyers’ ways of arguing, thinking, structuring a conversation do often make a difference.  This difference can add up, collectively, to an emerging market vibrancy built one relationship at a time.
  • Motivations:  When it comes to our own interventions in the market, each of us occupies a range of positions along the continuum between faith-based activism and self-doubt.  This has never been more true than at this moment as current market conditions are leading to a massive rethinking of basic principles not just in Egypt but in markets around the world.  How do each of us cope with having to make decisions in an environment of conflicting demands and lack of clarity about what the consequences of our actions might turn out to be? How do legal tools motivate us and others in a situation in which there is no simple answer as to what is best or worst practice? In order for lawyers to contribute to market stability, we need to build in our own techniques and practices for ensuring that we also have time to think independently–and for staying motivated in an inherently unbalanced environment.
  • Slowing Down and Making Room: In an environment in which there is not always an obvious right and wrong approach to market stability is, one of the important contributions of legal advocacy and advice is simply to make space for market participants to think independently.  The severity of the financial crisis had much to do with the herd mentality in the market–with replicating the same business model or investment strategy from one firm to another and one market to another without pausing to think independently about the wisdom of the strategy.  But the moment of legal advice is one of the rare moments at which market participants do afford the opportunity to stop and think about the consequences of their actions.  At those moments, legal tools and arguments can given market participants the confidence and the breathing room to think independently, and hence in the aggregate can help to preserve a diversity of investment strategies that in turn might bring greater stability to the market.  But too often, lawyers have been salespeople for cookie-cutter legal solutions that contribute to the herd mentality and undermine diversity of strategy. Likewise, lawyers can help to set in place institutional processes and procedures, or intervene in their dealings with clients in specific contexts, in ways that build breathing room for thinking about long term and collective consequences of short-term actions and about alternative courses of action–slowing down the process of declaring a condition of default, or developing a strategy for reconfiguring contractual or compliance obligations in light of rapidly changing circumstances, or encouraging a client to give greater institutional reflection to the public statements it makes about its operations. Doing this well ultimately requires creating a structured way to make room for market participants’ own doubts about their actions, rather than papering over these.  At the grandest level, this might actually lead to more responsible thinking about whether short-term strategies serve long-term goals or even about the collective consequences of individual strategies.


Lawyers have a special role to play in financial stability.  They already occupy a strategic place in the chain of market transactions–as both insiders/advisors and as translators to wider constituencies, facilitators of transactions, and coaches for a structured form of reflection on the larger consequences of individual market activity. Lawyers already have at their disposal the day to day professional tools and techniques for inserting stability into the system, one transaction, one investment decision, one disclosure at a time.  This fact–and hence the special responsibilities of lawyers not so much to the ethics of the lawyer-client relationship, but to doing their part to create a more stable market “commons”–rarely gets the attention it deserves from regulators, from commentators, even from lawyers themselves.

What would market reform look like if, instead of investing all our political energies in a policy-driven search for the perfectly calibrated regulatory architecture, we focused more attention on developing and re-directing the practical legal techniques that are already contributing in practical, day to day ways to market stability? This is a radically different vision of market reform–one that places lawyers in private practice at the center, rather than on the periphery of market stability. But if it is a radical change in perspective, it requires no new laws, no new policies, not even a change in these lawyers’ existing roles.  It simply requires that all of us individually take action to exploit the options and possibilities we already have, as part of our professional portfolio and repertoire, every day, to create more breathing room, more space, and hence more practical stability in the system. The tricks and techniques and strategies for this kind of legal intervention will vary from one practice to another. As such this kind of reform must be a very personal project of the individual professional. At the same time, it can be comparatively instructive and motivating to think about how to go about doing this in conversation with others.

Could we think of this as a market movement, along the lines of the other movements that have traditionally been more social or political in character? In all such movements, the actual direction of progress is always unclear, and for everyone involved, ambivalence, mixed motives, and compromised interests are par for the course.  Our own professional doubts about how we might “balance,” for example, a desire to do well with a desire to do good, or about whether the “right” thing to do is to encourage or discourage a certain form of risk-taking on the part of clients, are not only inevitable, they are actually the engine of such a movement.  In such a condition, as we saw, hope comes from creating small opportunities for change, small spaces for reflection, and then letting those opportunities unfold.

Retooling is ultimately not only for lawyers, of course.  It is a method of political and economic activism that is available to virtually anyone with a specialized skill set–from financial trading to parenting and everything in between.  The core approach is this: First, some skepticism about projects that promise to change internal motivations (our own or others)-to turn market cheaters into rule-followers, to turn racial bigots into enlightened progressives, to “motivate” children or workers who lack motivation and so on. Second, an unwillingness to put all our hope in grand structural reform–a new labor law, a new financial architecture and so on. Third, a rejection of the fantasy that if we really want to make a difference we should be somewhere else–we should be academics, or we academics should be in the real world, or we should run for political office, or we should start an NGO, or we should be employed in a different firm or a different industry, etc etc… (the now popular version in Japan is the fantasy of making a difference by abandoning city life and becoming an organic farmer). Instead, retooling involves deploying the skills and tools we already have, in the context in which we already find ourselves, in ordinary ways that reshuffle the deck just a little in order to to open up opportunities for different individual and institutional choices, to create space for reflection, and even to make room for fun.

(co-authored with Hirokazu Miyazaki)
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