Banking Regulations and Swaps: What Data Show

Associate Professor Ilya Beylin’s forthcoming scholarship examines why major banks simplified their financial instruments after the financial crisis and whether post-crisis regulation changed how swap markets operate. 
 

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Following the 2007-08 financial crisis, the nation’s six largest banking institutions—Bank of America, Citigroup, Goldman Sachs, JPMorgan, Morgan Stanley and Wells Fargo—became dramatically simpler in one important respect: They reduced their use of complex financial instruments. 

Associate Professor Ilya Beylin’s forthcoming study tracks the institutions from 2007 through 2024 and finds that the share of the most complex instruments fell by approximately eightfold from its crisis-era level. The surprising part is when that change began. 

Much of the decline occurred before relevant post-crisis regulatory changes took effect, raising questions about the roles of existing oversight, decisions within the banks and broader market forces. “There is this puzzle of tremendous simplification even ahead of new regulations,” Beylin said. That puzzle is at the center of “How Banking Institutions Have Become More Transparent After the Financial Crisis,” forthcoming in the Review of Banking & Financial Law in fall 2026. Using public financial disclosures, Beylin examines the complexity of banks’ financial instruments, focusing on assets and liabilities that require substantial judgment to value. 

A share of publicly traded stock, for example, can be valued using readily available market prices. Other instruments, including certain credit default swaps, require more assumptions and judgment. Those instruments can make banks more difficult for investors, regulators and the public to understand—and can complicate efforts to assess and manage risk. 

Beylin’s research finds that complexity declined across financial instruments generally and among derivatives specifically, though the decline was less pronounced for derivatives. As a result, derivatives now account for a larger share of the complex instruments that remain. 

The timing complicates a conventional account of post-crisis reform. Congress enacted the Dodd-Frank Wall Street Reform and Consumer Protection Act in 2010 and Beylin could not identify relevant Dodd-Frank regulatory changes that took effect before the end of 2012. By then, much of the simplification was already underway. 

The finding does not establish a single explanation. Existing law may have enabled regulators to press institutions to simplify. Bank leaders and shareholders may have concluded that complex products posed unacceptable risks. And, after the crisis, markets for certain mortgage-backed and asset-backed securities declined. “There are these dueling interpretations of the data, and they’re all interesting,” Beylin said. “I don’t land on a firm conclusion about which of these interpretations is the right one.” 

Beylin’s second forthcoming paper considers a related question: Did post-crisis regulation make swap markets more efficient, or did it impede a potentially valuable tool for managing financial risk? 

“Regulatory Burden or Market Reconfiguration? What Post-Dodd-Frank Swap Data Shows,” forthcoming in the University of Pennsylvania Journal of Business Law, uses Federal Reserve data from 2000 through 2025 to examine derivatives use by U.S. banking firms. 

Swaps are derivatives that can help businesses manage exposure to changes in interest rates, currency exchange rates and other variables. Following the crisis, the United States imposed sweeping new requirements on swap markets under Dodd-Frank. “Does regulation make things more efficient or does regulation depress activity?” Beylin ponders. The data offer competing answers. Interest rate and credit default swaps, which were more heavily affected by regulation, declined substantially. Foreign exchange and equity swaps, which were exempt from some requirements, grew. But when Beylin compared swaps with other hedging instruments—including futures, options and forwards—swaps became relatively more popular after the regulations took effect. 

The differences illustrate the limits of drawing broad conclusions from a single data point or a narrow time frame. “Within a year, things look one way,” Beylin said. “But if you stretch out the time horizon to, say, five years, what looked like it was decreasing starts to actually increase.” 

His conclusion is deliberately measured: “A conclusive result is elusive.” 

Beylin’s restraint reflects his broader approach to legal scholarship. He sees financial regulation not simply as a technical field, but as a way to understand how democratic institutions shape markets. “What I study, the law of markets, is basically a combination of those two things,” he said. “I study financial markets at their most essential and how law—mediated through democratic processes—shapes those markets.” 

His approach also informs his scholarship on prediction markets, where he questions whether products marketed as financial contracts genuinely serve a hedging purpose or instead primarily serve entertainment purposes (i.e., gambling). Beylin argues that products used chiefly for entertainment should be regulated accordingly. “It’s fine for these instruments to trade, but let’s trade them on gambling platforms,” he said. “It shouldn’t be derivatives markets that solve the problems in the gambling world.” 
For Beylin, the value of studying complex financial systems lies in making them more visible and accountable. “At the end of the day, I think we have a better regulatory system and a better society if we have more information,” he said. 

Beylin’s advice for students interested in the field is practical: Do not be intimidated by difficult material. This fall, he will teach Business Associations, a course he acknowledges “is challenging” but says can be valuable in practice, in life and on the bar exam. He said, “If you struggle through it, there’s a lot you can learn.”