Before 2007, it was a truth universally acknowledged that the world of law firm finance was in want of, well, very little. Law firms found banks a stable source of finance and banks found law firms were barely worth credit-checking.
Then a banking crisis and resultant recession coincided with the liberalisation of legal services. That changed the way banks and law firms view one another. Meanwhile, some legal market actors linked their financial stability to external ownership vehicles – with distinctly mixed results.
The Clementi reforms wrongly assumed that liberalisation alone served the public interest. Yet one can now argue that financial stability was the prerequisite for client welfare that his agenda overlooked.
Enter new options that sidestep stock exchanges and banks. Law firm bonds do not yet exist. But as TLT managing partner David Pester observes, these might offer stability for a profession that does most work on the never-never. Commercial peer-to-peer lending, while still a young industry, also offers new funding avenues and is growing fast.
Coinciding with a banking crisis, the Clementi reforms had a chilling effect on finance for the legal sector. Perhaps one day soon this may be a problem that can be solved with reference to neither Clementi nor the banks.