Credit Creation: Reconciling Legal and Regulatory Incentives

As international organizations adopt new legal standards to promote access to credit through the modernization of national secured transactions law, the lack of coordination with regulatory standards for banking institutions thwarts the effectiveness of these efforts. In recognizing the relevance of the problem, UNCITRAL - for the first time since its establishment - is currently considering how to coordinate secured transactions law reforms with the implementation of the Basel Accord. In a similar vein, the problem is currently approached by other international organisations. Although efforts at the national level to coordinate legal and regulatory standards are commendable, coordination between secured transactions law and capital requirements should be addressed at the highest level of the lawmaking process, i.e. when international soft-laws are defined. To advance this argument, the key functions of secured transactions law and capital requirements are isolated and a holistic understanding of the legal and regulatory rules governing the creation of credit is presented. The Article steers away from the idea that banks are mere intermediaries and offers a fresh understanding of the role of regulatory capital in controlling credit creation, through the management of risk. Within this context, the incentives created by secured transactions law and capital requirements are examined by comparing the capital charges for different credit protections, including credit derivatives and commercial loans to small business. First, it emerges that the implementation of new secured transactions law and the limited ability of security interests in personal property to reduce regulatory capital under the Basel Accords stimulate the creation of credit outside the banking system. Second, to control this phenomenon, the Article shows that it is essential to reconcile the incentive structures created by international legal and regulatory standards

Global regulatory standards and secured transactions law reforms : at the crossroad between access to credit and financial stability

The main argument of this article is that dissonances between secured transactions law and capital requirements stem from their different ethoi and hinder both access to credit and financial stability worldwide. To sustain this argument and advance the debate in both fields of law, it is necessary, first, to isolate the rationales and the operational logics of secured transactions law and capital requirements. The narrative sustaining and justifying the law of secured transactions is rooted in the idea that security interests, especially those in personal property, are the core engine for economic growth as they redress the problem of “dead capital”, that is, the mismatch between the assets held by individuals or companies and the assets that financiers are willing to accept as collateral. Through this lens, international organizations have been actively engaged in promoting law reforms that establish legal regimes that facilitate the conversion of dead capital into productive capital. The underlying assumption is that by preferring secured creditors over unsecured creditors, the use of collateral is facilitated and more credit is extended at a lower cost. Hence, law reformers strive to design a legal regime in which creditors and debtors are able to negotiate the terms of their consensual transactions to fit their idiosyncratic financing needs and risk appetites, while mandatory rules are largely imposed having in view the effects of security rights on third par ties. As illustrated in this Article , such a rationale permeates national laws and the international legal standards adopted by the United Nations Commission on International Trade Law (UNCITRAL) and the European Bank for Reconstruction and Development (EBRD

Personal Property Security Law: International Ambitions and Local Realities

Personal property security law is a key element of “access to credit” and “financial inclusion”. The prevailing view is that a legal framework enabling the effective use of personal property as collateral markedly benefits both lenders and borrowers. Lenders can offer financing at a lower cost thanks to reduced credit risk; borrowers can access funding by leveraging the otherwise unavailable value of the assets integral to their operations.Over the past century, the priorities of personal property security law have evolved fundamentally. As small and medium-sized enterprises (SMEs) and individual entrepreneurs have become the growth engine of both developed and developing economies, legislators have grown sensitive to the financing needs of these entities. In parallel, the advent of the information society has demanded that lawmakers address squarely the rules governing the use as collateral of intangibles such as “receivables”, “intermediated securities”, “non-intermediated securities”, and “intellectual property rights”, rather than confine their gaze to tangibles such as industrial machinery, mobile equipment and inventory. Concurrently, the increasingly transnational nature of both economic development policies and commercial activity have engendered the need for global principles and standards for asset-based lending.To address these novel priorities and promote a healthy and vibrant credit ecosystem, international and regional organizations have undertaken projects aimed at modernizing and harmonizing personal property security law. Over time, these efforts have yielded a panoply of legal instruments. Binding conventions have been adopted to unify the rules of discrete facets of personal property security law, while soft-law texts, such as model laws and legislative guides, have been formulated to supply comprehensive legal templates to lawmakers keen to revise their domestic legal regimes. Nevertheless, states have struggled to assimilate these international efforts into their domestic legal systems. Common law jurisdictions have been loath to abandon the familiarity and safety of the path paved by centuries of case law; in similar vein, civil law jurisdictions have resisted inducements to renovate the normative infrastructure erected by the codifications of the 19th century.This Chapter explores the tension between international ambitions and local realities, with a special focus on the issues encountered in civil law jurisdictions. To this end, the case of Italy is examined as a living experiment in comparative personal property security law. In this jurisdiction, the recent enactment of a non-possessory security device, absent a comprehensive reform of the country’s civil code affords important lessons for any civil law system which might be pondering personal property security law reforms. More profoundly, it epitomizes the gap that separates the aspirations of international legal instruments from their effective implementation in domestic contexts. This analysis is divided into two parts. The first reviews international and regional legal initiatives that have shaped the personal property law landscape and then identifies a set of core tenets shared among them. In the second part, attention shifts to Italy, scrutinizing both the personal property security legal edifice originally constructed in this jurisdiction and the attempts to overhaul it that have taken place over the past three decades. This is followed by a critical appraisal of the current state of the law, by reference to the aforementioned core tenets of personal property law reform

Credit creation : reconciling legal and regulatory incentives

As international organizations adopt new legal standards to promote access to credit through the modernization of national secured transactions law, the lack of coordination with regulatory standards for banking institutions thwarts the effectiveness of these efforts. In recognizing the relevance of the problem, UNCITRAL - for the first time since its establishment - is currently considering how to coordinate secured transactions law reforms with the implementation of the Basel Accord. In a similar vein, the problem is currently approached by other international organisations. Although efforts at the national level to coordinate legal and regulatory standards are commendable, coordination between secured transactions law and capital requirements should be addressed at the highest level of the lawmaking process, i.e. when international soft-laws are defined. To advance this argument, the key functions of secured transactions law and capital requirements are isolated and a holistic understanding of the legal and regulatory rules governing the creation of credit is presented. The Article steers away from the idea that banks are mere intermediaries and offers a fresh understanding of the role of regulatory capital in controlling credit creation, through the management of risk. Within this context, the incentives created by secured transactions law and capital requirements are examined by comparing the capital charges for different credit protections, including credit derivatives and commercial loans to small business. First, it emerges that the implementation of new secured transactions law and the limited ability of security interests in personal property to reduce regulatory capital under the Basel Accords stimulate the creation of credit outside the banking system. Second, to control this phenomenon, the Article shows that it is essential to reconcile the incentive structures created by international legal and regulatory standards

Commercial Law Intersections

Commercial law is not a single, monolithic entity. It has grown into a dense thicket of subject-specific branches that govern a broad range of transactions and corporate actions. When one of such dealings or activities falls concurrently within the purview of two or more of these commercial law branches—such as corporate law, intellectual property law, secured transactions law, conduct and prudential regulation—an overlap materializes. We refer to this legal phenomenon as a commercial law intersection (CLI). CLIs are ubiquitous. Notable examples include traditional commercial transactions, such as bank loans secured by shares, supply chain financing, or patent cross-licensing agreements, as well as nascent FinTech arrangements, such as blockchain-based initial coin offerings and other dealings in digital tokens. CLIs present a multi-faceted challenge. The unharmonious convergence of commercial law branches generates failures in coordination that both increase transaction costs and distort incentives for market participants. Crucially, in the most severe cases, this affliction deters business actors from entering into the affected transactions altogether. The cries of scholars, judges, and practitioners lamenting these issues have grown ever louder; yet methodical, comprehensive solutions remain elusive. This Article endeavors to fill this void. First, it provides a comprehensive analysis of CLIs and the dynamics that give rise to coordination failures. Drawing from systems theory and jurisprudence, it then identifies the deficiencies of the most common approaches used to reconcile tensions between commercial law branches, before advancing the concepts of “legal coherence” and “unity of purpose” as the key to addressing such shortcomings. Finally, leveraging these insights, it formulates a normative blueprint, comprising a two-step method which aims to assist lawmakers, regulators, and courts in untangling the Gordian knot created by CLI coordination failures

Financial Data Governance

Finance is one of the most digitalized, globalized, and regulated sectors of the global economy. Traditionally technology intensive, the financial industry has been at the forefront of digital transformation, starting with the dematerialization of financial assets in the 1960s and culminating in the post–2008 global financial crisis era with the fintech movement. Now, finance is data: financial transactions are transfers of data; financial infrastructures, such as stock exchanges and payment systems, are data networks; financial institutions are data processors, gathering, analyzing, and trading the data generated by their customers. Financial regulation has adapted to this fast-paced evolution both by implementing new regimes and by adapting existing ones. Concomitantly, general data governance frameworks to protect a broad spectrum of interests, from individual privacy to national security, have emerged. Though these areas of law intersect, their relationship often remains unclear. This Article sheds new light in this critical area, focusing on key challenges and providing viable solutions to address them. First, we define financial data governance as a heterogenous system of rules and principles concerned with financial data, digital finance, and related digital infrastructure. To explain how legal and regulatory regimes interact with the digitalization of finance, we consider the key emerging financial data governance styles in the European Union, People’s Republic of China, India, and the United States. Second, we examine the challenges affecting financial data governance. While finance is inextricably linked to data governance, the coalescence of financial regulation, new regulatory frameworks for digital finance, and general data governance regimes is not always harmonious. Conflicts arising from the intersection of different uncoordinated regimes threaten to frustrate core policy objectives of stability, integrity, and security, as well as the functioning of the global financial system. Addressing this requires a reconceptualization of the financial data centralization paradigm, both by regulators and by the financial industry

Behavioral and psychological effects of coronavirus disease-19 quarantine in patients with dementia

Background: In March 2020, the World Health Organization declared a global pandemic due to the novel coronavirus SARS-CoV-2 and several governments planned a national quarantine in order to control the virus spread. Acute psychological effects of quarantine in frail elderly subjects with special needs, such as patients with dementia, have been poorly investigated. The aim of this study was to assess modifications of neuropsychiatric symptoms during quarantine in patients with dementia and their caregivers. Methods: This is a sub-study of a multicenter nation-wide survey. A structured telephone interview was delivered to family caregivers of patients with diagnosis of Alzheimer disease (AD), dementia with Lewy bodies (DLB), frontotemporal dementia (FTD), and vascular dementia (VD), followed regularly at 87 Italian memory clinics. Variations in behavioral and psychological symptoms (BPSD) were collected after 1 month since quarantine declaration and associations with disease type, severity, gender, and caregiver\u2019s stress burden were analyzed. Results: A total of 4,913 caregivers participated in the survey. Increased BPSD was reported in 59.6% of patients as worsening of preexisting symptoms (51.9%) or as new onset (26%), and requested drug modifications in 27.6% of these cases. Irritability, apathy, agitation, and anxiety were the most frequently reported worsening symptoms and sleep disorder and irritability the most frequent new symptoms. Profile of BPSD varied according to dementia type, disease severity, and patients\u2019 gender. Anxiety and depression were associated with a diagnosis of AD (OR 1.35, CI: 1.12\u20131.62), mild to moderate disease severity and female gender. DLB was significantly associated with a higher risk of worsening hallucinations (OR 5.29, CI 3.66\u20137.64) and sleep disorder (OR 1.69, CI 1.25\u20132.29), FTD with wandering (OR 1.62, CI 1.12\u20132.35), and change of appetite (OR 1.52, CI 1.03\u20132.25). Stress-related symptoms were experienced by two-thirds of caregivers and were associated with increased patients\u2019 neuropsychiatric burden (p<0.0001). Conclusion: Quarantine induces a rapid increase of BPSD in approximately 60% of patients and stress-related symptoms in two-thirds of caregivers. Health services need to plan a post-pandemic strategy in order to address these emerging needs