In his recent article in the Cornell Law Review Professor Jonathan Macey examines the process of "regulation by assimilation", arguing that assimilation is common in the financial world and has negative, unanticipated consequences.
"Regulation by assimilation" refers to the process by which government regulators mandate the use of certain market- and financial sector-generated devices and institutions. Examples of assimilated devices and institutions include credit ratings generated by credit ratings agencies (a.k.a. by regulators as Nationally Recognized Statistical Rating Organizations), Value at Risk (VaR) models, advisory and fairness opinions and audits of corporations' financial results by independent auditors.
Prof. Macey explains how regulation by assimilation weakens and corrupts the efficacy of the very devices and institutions that have been assimilated. His analysis indicates that the process of assimilation "was a major cause of the financial crisis of 2007 and 2008 because it distorted the ability of firms and markets to measure and assess the riskiness of their activities."
Frank Partnoy, Infectious Greed: How Deceit and Risk Corrupted the Financial Markets (2009).
Helen M. Bowers, Fairness Opinions and the Business Judgment Rule: An Empirical Investigation of Target Firms' Use of Fairness Opinions, 96 Nw. U. L. Rev. 567 (2002).
Jonathan R. Macey, The Death of Corporate Reputation: How Overregulation Has Destroyed Integrity on Wall Street (2013).
Theodore Eisenberg & Jonathan R. Macey, Was Arthur Anderson Different? An Empirical Examination of Major Accounting Firm Audits of Large Clients, 1 J. Empirical Legal Stud. 263 (2004).