The banking union and its implications for private law: a comment

This comment seeks to provide a conceptual framework for analysing the Banking Union's implications for private law. After discussing how and in what form the Banking Union can engender potentially relevant regulatory norms, it identifies the general ways whereby these can be recognised in private law and translated into private rights and/or duties. It then responds to a common argument against translation, namely, that the public nature of the regulatory regime's goals and concerns hinders its normative expansion in the realm of private law. On a more practical level, it provides a tentative catalogue of private legal relations likely to be affected by the Banking Union

Special resolution regimes for banking institutions: objectives and limitations

The global financial and economic crisis which started in 2008 has had devastating effects around the globe. It has caused a rethinking in different areas of law, and posed new challenges to regulators and private actors alike. One of the emerging issues is the apparent eclipse of boundaries between different legal disciplines: financial and corporate lawyers have to learn how public law instruments can complement their traditional governance tools; conversely, public lawyers have had to come to understand the specificities of the financial markets they intend to regulate.While commentary on financial regulation and the global financial crisis abounds, it tends to remain within disciplinary boundaries. This volume not only brings together scholarship from different areas of law (constitutional and administrative law, EU law, financial law and regulation), but also from a variety of backgrounds (academia, practice, policy-making) and a number of different jurisdictions.The volume illustrates how interdisciplinary scholarship belongs at the centre of any discussion of the economic crisis, and indeed regulation theory more generally. This is a timely exploration of cutting-edge issues of financial regulation

Bank resolution financing in the banking union

In early 2012, the Spanish state came under strong market pressure due to its engagement in round after round of large-scale bank bailouts. The country’s joint sovereignbank crisis shed new light on the nature of the euro area’s crisis. European decision-makers were forced to openly recognize the non-fiscal – that is, the banking and monetary – causes of sovereign distress and to accept the need for drastic policy solutions. The policy shift soon took concrete form with the launch of the Banking Union project in June 2012. The principal intention was to break the bank-sovereign link and to relieve the euro area’s weaker economies from the almost impossible burden of having to finance bank bailouts out of national fiscal resources. The mutualization of bailout costs through a common ‘fiscal backstop’ was, in other words, the key objective of the Banking Union as originally conceived. Subsequent policy choices, however, have marked a relaxation, if not partial abandonment, of this objective. The policy approach eventually adopted with regard to resolution financing in the context of the Banking Union’s Single Resolution Mechanism (SRM) is based on the burden-sharing norms of the Bank Recovery and Resolution Directive (BRRD), the instrument harmonizing bank resolution regimes across the EU. This guarantees the legal consistency of resolution frameworks within and outside the euro area. It is less certain, whether the chosen approach can insulate national state finances from the costs of bank bailouts and/or ensure the full equalization of the financial conditions for bank resolution everywhere in the euro area. The sufficiency of the planned common financial instruments is a particular concern

A heavily regulated industry: the varied objectives of financial regulation

The imposition of tight regulatory controls on banks and other financial intermediaries is a universal characteristic of modern economic systems. The frequency and intensity of legislative and administrative measures affecting financial activities demonstrate the state’s incessant concern with the way in which the market operates in this field. The precise perimeter of the regulated sector varies, however, from one jurisdiction to another and changes over time. The same is true of the type and direction of regulatory intervention. This raises important questions about the existence or otherwise of common denominators – common objectives and overarching justifications – that hold together the edifice of financial regulation. The discussion on regulatory objectives has both a positive and a normative aspect. The regulatory regime’s actual objectives constitute an indispensable element of its description. What purposes does financial regulation serve? Are they the same for all sectors of the financial industry? Is the current regulatory regime a continuation of earlier state interventions in financial markets in the sense that, despite any technical adaptations of the tools employed, the objectives have remained essentially stable or is it something fundamentally different? The answers to these questions are important for an understanding of the nature and function of the regulatory regime. An identification of the regulatory objectives is also essential for a correct legal assessment of specific factual situations and ensuing administrative responses

Financial stability and integration in the banking union

How stable and resilient is the euro area’s Banking Union? The answer depends on the fundamentals of the euro area’s financial sector as much as on the Banking Union’s novel institutional and normative framework. The prospects for financial stability are thus contingent on the evolution of banks’ portfolios, conditions of operation and industrial structure, as reshaped by the crisis (section 1). In particular, the degree of integration of financial markets and banking systems is a key factor: continuing fragmentation is bound to have negative implications also in terms of resilience (section 2). Turning to public prudential regulation and crisis management, the establishment, as part of the Banking Union project, of streamlined decision-making mechanisms for the supervision and resolution of banks may not be enough; coherent and credible arrangements for the financing of resolution actions and, more generally, for the provision of a uniform and effective safety net are also needed. With a convincing and equitable set of burden-sharing arrangements, a future financial shock would be less destabilizing and a relapse to conditions of market fragmentation could be avoided (section 3). It should be noted, however, that a proper appreciation of the situation regarding the safety net should take explicitly into account the close interactions between banking regulation and monetary policy. From this perspective, the ultimate question is, whether the Banking Union can provide simultaneously effective stabilization mechanisms and robust market discipline, through unwaveringly strict enforcement of prudential standards and banks’ budgetary constraints (section 4)