Intermediary Risk in a Global Economy

Worldwide financial markets increasingly depend on structures that reduce risk by interposing intermediaries between investors and the companies obligated to pay them. This reduction of risk may be offset, however, by the risk that an intermediary will fail, and its creditors then will claim against assets held by the intermediary for the benefit of investors. If the intermediary holds assets solely in a custo- dial capacity, this risk traditionally is addressed by agency and trust law. What is novel, however, is that intermediaries in a wide range of domestic and international dealings—including the trading of invest- ment securities, the sale of loan participations, and securitization transactions—now hold assets in which they, as well as investors, share beneficial rights. The sharing of these rights creates significant uncertainty as to whether the intermediary's creditors can look to all