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Steven L. Schwarcz

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Steven L. Schwarcz

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Steven L. Schwarcz

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Steven L. Schwarcz and Aleaha Jones

Excessive risk-taking by systemically important financial firms was one of the leading causes of the financial crisis. Research suggests these firms may be no safer today than they were pre-crisis, and they may even be increasing their risk-taking. Risk-taking is inherently a corporate governance choice. Why would rational managers want their firms to engage in excessive, rather than appropriate, risk-taking? The answer might lie in corporate governance law, which fails to adequately address a new reality: risk-taking by systemically important firms can sometimes have systemically harmful consequences. This chapter examines how governance alternatives to shareholder primacy might help to address that reality. It also considers how to evaluate that regulation as a policy matter. The chapter does not purport to provide a definitive and complete answer. Instead, it focuses on trying to offer a framework, as part of an international research agenda, for analyzing and thinking about the answer.