by management to publish nominations for board members on the company ’ s proxy statement. however, increasing shareholder access to the proxy statement may not be without costs. some have argued that the democratization of the nomination process may pave the way for special interests to undermine the goal of maximizing shareholder value. ultimately, the question of whether institutional investors mitigate corporate governance problems is an empirical one. academic work in this area has not convincingly linked institutional holdings to firm performance. but some studies have shown that institutional shareholder activism does appear to be motivated by efforts to increase shareholder value, and other studies have confirmed that institutional activism is associated with a greater incidence of corporate governance events, such as shareholder lawsuits and corporate takeovers. based on these findings, it would be premature to conclude that the rising share of corporate equity held by institutional investors is clearly good in terms of sound corporate governance. that said, believing that institutional shareholder activism has benefits and that these benefits may help pave the way for market discipline in a broader sense does seem reasonable. corporate governance at mutual funds perhaps another reason for being cautious about the benefits of institutional ownership is that institutional investors have their own governance problems. as you are no doubt aware, such problems at mutual funds have been manifest in headlines over the past year. i would now like to discuss both the conflicts of interest that lie at the heart of many of the recent mutual fund scandals and the responses by investors and regulators. arguably the most fundamental conflict of interest at mutual funds occurs because the compensation of mutual fund managers and management companies is generally tied to the value of the assets they manage. as a result, managers have an incentive to attract cash, and they may do so by methods which impose costs on long - term shareholders. for example, as was heralded in the press, a few mutual fund firms allowed late traders to exploit stale share prices by rapidly trading mutual fund shares. long - term shareholders suffered reduced investment returns, but management companies collected extra fees on the “ hot money ” while it was in their funds. importantly, long - term investors were not informed of these deals. another method for attracting cash is to compensate mutual fund brokers for bringing in new money. so - called “ directed brokerage ”, for example, is a means of rewarding a broker who sells mutual fund shares by giving the broker a slice of the fund ’ s securities trading business. such compensation arrangements clearly give brokers an incentive to sell these mutual funds regardless of whether the funds are appropriate for

will leave to others the question of whether every detail of the laws passed in this period was equally effective, in the short or long term, in promoting macroeconomic stability. but we should recognize that rules to promote financial stability and a healthy economy have deep roots in the american legal tradition. the post - crisis international consensus arguably, the history of law and macroeconomics has even deeper roots. prior to the banking act of 1935, congress had passed the national bank act of 1863 in response to the financial crisis that emerged during the early days of the american civil war. its purpose was to create a national banking system and establish a national currency. the following year, congress passed the national bank act of 1864, which established the office of the comptroller of the currency and gave the federal government the authority to supervise commercial banks. some might even characterize the first and second banks of the united states as early efforts at law and macroeconomics. - 4building upon that strong tradition, i would like to focus this morning ’ s remarks on the role that law and macroeconomics has played since the financial crisis in promoting a more stable economy. i am, of course, referring to macroprudential financial regulation. let ’ s rewind the tape. after many decades of remarkable financial stability in the united states since the 1930s, the focus of financial oversight had moved away from systemic risks. prior to the financial crisis, the better part of our regulatory framework was microprudential in nature — individual laws geared toward mitigating the fallout from idiosyncratic shocks to firms. this framework was designed to protect investors and depositors, viewed negative shocks as not originating from the financial system, and did not take into account risks that might be shared by financial firms. 2 this is not to say that regulators did not understand the consequences of an interconnected system and the potential of contagion. for instance, the u. s. government, under the able leadership of treasury secretary nicholas brady, recognized and responded to the financial stability risks of the latin american debt crisis of the 1980s. the united states had interests in stabilizing allies in latin america, but a central part of the motivation was to contain potential risks to the u. s. economy. the events of 2008 – 09 redefined our mission by more explicitly connecting macroeconomic and financial stability, as in the 1930s. congress and the executive branch embraced a sweeping response, designing a system of laws to reflect a recognition that the cumulative