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January 26, 2010

Professor Henry Hu, head of the SEC's new Division of Risk, Strategy, and Financial Innovation, profiled in the Wall Street Journal

Photo of Henry Hu
Professor Henry T. C. Hu, Director of the SEC's Division of Risk, Strategy, and Financial Innovation

The full article, “At SEC, Scholar Who Saw It Coming” is available to subscribers on the Wall Street Journal website.

A January 25, 2010 Wall Street Journal story profiles Henry Hu, Allan Shivers Chair in the Law of Banking and Finance at the University of Texas School of Law. Titled At SEC, Scholar Who Saw It Coming, the story discusses his academic research (in particular, a prescient 1993 Yale Law Journal article on the dangers posed by derivatives) as well as his role as the inaugural Director of the recently established Division of Risk, Strategy, and Financial Innovation (“Risk Fin”) at the United States Securities and Exchange Commission.

The story notes that SEC Chairman Mary Schapiro was attracted by Hu’s out-of-the-box thinking and called him out of the blue to ask him to head Risk Fin. Schapiro is quoted as saying that Hu’s job is “to help us really rethink risk management and help us attract different skills sets to the agency as we try to remake the organization.” The story also mentions how, among other things, Hu is advising Schapiro as to a possible Congressional overhaul with respect to derivatives regulation, and that he is pushing for “strong steps.” Risk Fin is the first new Division at the SEC in thirty-seven years.

The story emphasizes how his 1993 article, Misunderstood Derivatives: The Causes of Informational Failure and the Promise of Regulatory Incrementalism had anticipated both that financial innovation could cause major problems for financial firms, and how this may occur. The story notes how the article offered a premonition of AIG’s near-collapse in 2008, and also refers to his research on decoupling and, in particular, how his April 2009 Wall Street Journal op-ed on “empty creditors” prompted Schapiro’s job offer.  

Hu has written on asset allocation; the regulation of banks; derivatives; hedge funds; mutual funds; corporate governance; financial rationality and sophistication; the global “competitiveness” of U.S. derivatives markets; model risk; risk management; swaps and other financial innovations; and time diversification.

Hu is the lead author on a series of pioneering articles on the “decoupling” of debt and equity, its impact on corporate and debt governance and world systemic risk, and possible disclosure and substantive responses. This “decoupling” research has attracted attention, including a lead front-page story in the Wall Street Journal and stories in the Economist, the Financial Times, and the New York Times.

Related links:

UT Law Professor Henry Hu named first director of the SEC’s new Division of Risk, Strategy, and Financial Innovation

Professor Henry Hu testifies for SEC on derivatives regulation before the U.S. House Committee on Financial Services

Contact:

Kirston Fortune, UT Law Communications Office, 512-471-7330, or kfortune@law.utexas.edu