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Chapter

Cover Principles of Banking Law

8. Bank Networks  

Ross Cranston, Emilios Avgouleas, Kristin van Zweiten, Theodor van Sante, and Christoper Hare

This chapter considers the relationship which banks have with other banks. The discussion revolves around legal impact and legal consequences, in this case of the various types of inter-bank relationships. It shows that in some cases, banks become the customers of other banks. Some of the issues discussed in the chapter lay the foundation for some of the later chapters, notably that on payment and lending. These relationships between banks are primarily contractual in nature; the concept of the network usefully encapsulates the scope of the discussion. The chapter covers correspondent banking, inter-bank markets and contracts, exchange markets and payment systems, and bank syndicates.

Chapter

Cover Commercial Law

23. Legal aspects of money and payment  

This chapter discusses the idea of a payment obligation and the meaning of money, which are both central to commercial law.. Its objectives are, firstly to introduce the idea of money, the legal nature of physical cash, what it means to have money in the bank and whether crypto-currencies can be regarded as money. It then considers what is involved in the obligation of meeting a payment; and the basic nature of a bank account before dealing with electronic payment mechanisms through funds transfers with particular reference to BACs and Chaps including bank settlement procedures.

Chapter

Cover Principles of Banking Law

15. Banks and the Capital Markets  

Ross Cranston, Emilios Avgouleas, Kristin van Zweiten, Theodor van Sante, and Christoper Hare

This chapter considers banks' securities activities. Many banks have compensated for the decline in traditional finance by emphasizing their securities activities. These range from the traditional task of investment banks in advising, underwriting, and distributing new issues of securities, through to dealing on their own account on securities and derivatives markets — proprietary trading. In the decade leading up to the Global Financial Crisis, banks also played a significant role in introducing new products to these markets, including asset-backed securities and credit derivatives. The onset of the crisis provoked intense scrutiny and widespread criticism of many of these activities, and led to the introduction of significant controls on the ability of banks to engage in them. The chapter discusses types of securities, subordination, and custody; distributing securities issues; and securities regulation.

Chapter

Cover Principles of Banking Law

6. Bank Insolvency and Resolution  

Ross Cranston, Emilios Avgouleas, Kristin van Zweiten, Theodor van Sante, and Christoper Hare

Banks can become distressed for a range of reasons, just like other firms. These reasons may be internal to the distressed bank (e.g. risky lending practices) or external to it (both at industry level and at the macroeconomic level), or both. Distressed banks, however, are not always subject to the same regulatory regime that governs the treatment of distress in other kinds of firms. Banks have special characteristics and this has led to the special treatment, which is explored in this chapter. The discussions cover the justification for special treatment, special resolution regimes, bank resolution regimes at domestic level, and cross-border complexities.

Chapter

Cover Principles of Banking Law

4. Fundamental Principles of Bank Supervision and the Lender of Last Resort—A Reconceptualization  

Ross Cranston, Emilios Avgouleas, Kristin van Zweiten, Theodor van Sante, and Christoper Hare

This chapter examines the architecture and functions of bank supervision. Bank supervision is the process through which compliance with discussed prudential, conduct, and systemic regulations is safeguarded and enforced. It is normally exercised by public agencies that have the competence to approve the establishment and operation of credit institutions and monitor continuous compliance with the requisite regulatory framework. The same public bodies are also vested with remedial (early intervention) and enforcement powers in the event of a breach of any of the above. The chapter covers the fundamental principles of financial supervision; bank supervisors' accountability and judicial review; bankers' conduct, money laundering, and terrorist financing; and the central bank as the lender of last resort to the banking system.

Chapter

Cover Banking Law and Regulation

13. Crisis management and resolution  

Iris Chiu and Joanna Wilson

This chapter explores the development of a regulatory regime for crisis management and resolution. The lack of a coherent policy toolkit to deal with bank failures and cross-border bank failure implications in the 2007–9 global financial crisis sets the context for policy reform in bank crisis management and resolution. The regime for bank crisis management and resolution in the UK is found in the Bank Recovery and Resolution Order 2016 and the PRA Rulebook, transposing the European Bank Recovery and Resolution Directive 2014. This regime covers crisis prevention, which refers to advance planning by banks; early intervention by resolution authorities short of resolution; the processes and powers in resolution; safeguards and accountability in resolution; and funding for resolution. The chapter then looks at deposit guarantee schemes as well as cross-border crisis management and resolution.

Chapter

Cover Principles of Banking Law

9. The Duty of Confidentiality  

Ross Cranston, Emilios Avgouleas, Kristin van Zweiten, Theodor van Sante, and Christoper Hare

This chapter discusses the legal duty of confidentiality (or secrecy) that banks owe their customers. The real problems in the application of the doctrine in practice are two-fold. First, confidentiality has a habit of getting in the way of commercially acceptable practices. There is the potential for breaches of confidentiality where a bank performs different functions. For instance, banks may like to distribute information throughout the corporate group so that a range of financial, insurance, and other services can be marketed to customers. Secondly, confidentiality can act as a cloak for wrongdoing, often on a massive scale. Political leaders who have exploited their people, drug barons, and criminals have used the banking system to spirit away their ill-gotten gains. Bank confidentiality has then acted as an obstacle to bringing the culprits to justice and recovering the booty. Confidentiality also provides one of the explanations of how international terrorists have transferred financing round the world without detection.

Chapter

Cover Principles of Banking Law

1. Banks in the Financial System  

Ross Cranston, Emilios Avgouleas, Kristin van Zweiten, Theodor van Sante, and Christoper Hare

This chapter explains the economic functions and organizational structure of contemporary banking. It first discusses the role of banks in the economy, offering a brief account of the role of the financial system in capital allocation and risk management as well as key bank functions in this respect. It then details the rise and fall of the multifunctional bank in the era of globalization, and the different aspects of the too-big-to-fail bank problem and its possible causes. It explains the international nature of bank regulation and the standard-setting and regulatory coordination provided by key transnational regulatory networks such as the Basel committee on Bank Supervision and the Financial Stability Board; discusses the legal definition of the term ‘bank’ in the US and of ‘credit institution’ under EU legislation; advances a new understanding of what the term ‘bank’ means in the post-2008 era.

Chapter

Cover Principles of Banking Law

14. Lending  

Ross Cranston, Emilios Avgouleas, Kristin van Zweiten, Theodor van Sante, and Christoper Hare

This chapter considers lending in liberalized markets, where banks enjoy greater autonomy in their choice of borrower, the terms on which they lend, and the exercise of remedies on a borrower's default. It focuses on commercial lending by banks, and thus does not consider the additional issues that arise in relation to consumer lending. Commercial lending by banks can take various forms. Bankers often use the generic term ‘facility’ to describe them all. The most basic is the term loan, where a specified maturity date sets the time for ultimate repayment. The chapter discusses the negotiation of the agreement for commercial loan facilities; the facility and its repayment; conditions precedent, representations and warranties, covenants; the negative pledge and pari passu clauses; and default.

Chapter

Cover Principles of Banking Law

16. Loan Sales and Securitization  

Ross Cranston, Emilios Avgouleas, Kristin van Zweiten, Theodor van Sante, and Christoper Hare

This chapter examines one context in which contracts and debts are transferred — as banks and bank subsidiaries ‘sell’ their own assets, i.e. their loans, mortgages, credit card receivables, and so on. Commercially speaking, this divides into loan sales and securitization. Among the various motivations for these transactions are to reduce risk, to meet capital requirements, to allow for new lending, and to take advantage of financial and commercial opportunities. Securitization was abused, with many risky loans repackaged and sold as highly rated securities. Its contribution to the global financial crisis in 2008 made it unpopular. However, it remains significant as a financing technique. Before examining loan sales and securitization, the chapter lays out the different legal techniques for transferring debts and contractual rights.

Chapter

Cover Principles of Banking Law

18. Security  

Ross Cranston, Emilios Avgouleas, Kristin van Zweiten, Theodor van Sante, and Christoper Hare

This chapter discusses security in lending. Lending is in some cases unsecured, where the standing of the borrower is such that the banks cannot demand it or, because of the creditworthiness of the borrower, do not regard it as necessary. However, much international lending is now oriented towards particular projects, and security is taken. Security is often required so that the bank can recoup itself out of the collateral in the event of default. In relation to project financings, the security required by the banks will often be of a comprehensive nature; for example a fixed and floating charge, a charge over shares, a legal assignment of material contracts, and so on. With syndicated lending, the security might be granted in favour of a security trustee to hold to the benefit of the members of the lending syndicate. Within a corporate group, each member may contribute to the security, and there will be cross-guarantees.

Chapter

Cover Essential Cases: Contract Law

Royal Bank of Scotland v Etridge (No.2) [2001] UKHL 44  

Essential Cases: Contract Law provides a bridge between course textbooks and key case judgments. This case document summarizes the facts and decision in Royal Bank of Scotland v Etridge (No. 2) [2001] UKHL 44. The document also includes supporting commentary from author Nicola Jackson.

Chapter

Cover Essential Cases: Contract Law 5e

Royal Bank of Scotland v Etridge (No.2) [2001] UKHL 44  

Essential Cases: Contract Law provides a bridge between course textbooks and key case judgments. This case document summarizes the facts and decision in Royal Bank of Scotland v Etridge (No. 2) [2001] UKHL 44. The document also includes supporting commentary from author Nicola Jackson.

Chapter

Cover Banking Law and Regulation

6. UK banking supervision and regulatory architecture  

Iris Chiu and Joanna Wilson

This chapter addresses the UK bank supervision and regulatory architecture. Although banking business has existed in England since the seventeenth century, banks enjoyed no formal system of regulation until the introduction of the Banking Act of 1979. Over the years, the scope and intensity of regulation increased. After the global financial crisis, further changes were made to bank regulation as well as the regulatory architecture in the UK for bank regulation. The regulatory architecture introduced in April 2013 is characterised as ‘twin peaks’, that is, having two main agencies that are responsible for different regulatory objectives. The Prudential Regulation Authority (PRA) is responsible for ‘prudential’ objectives—that is, the solvency and financial soundness of financial institutions—while the Financial Conduct Authority (FCA) is responsible for conduct of business and market regulation, including promoting competition. The PRA and FCA enjoy a wide berth of rule-making and enforcement powers.

Chapter

Cover Banking Law and Regulation

9. Micro-prudential regulation II  

Other measures

Iris Chiu and Joanna Wilson

This chapter discusses other regulatory techniques to control bank risk-taking, many of them developed since the global financial crisis of 2007–9. The Basel Committee has now introduced two liquidity standards for banks as internationally harmonising measures: the liquidity coverage ratio and the Net Stable Funding Ratio (NSFR). Besides liquidity management rules, there are other measures of micro-prudential regulation developed or enhanced after the crisis. One is the leverage ratio, which sets an absolute amount of lending banks can engage in, regardless of risk-weighting. Another is large exposures regulation in the EU, which deals with controlling the over-concentration by banks in lending to certain customers. The chapter also looks at systemically important financial institutions that are global banks with such an international footprint that their vulnerabilities may threaten financial systems and economies more acutely than other banks. Moreover, it illustrates the frameworks for stress testing.

Chapter

Cover EU Law

21. Free Movement of Capital and Economic and Monetary Union  

All books in this flagship series contain carefully selected substantial extracts from key cases, legislation, and academic debate, providing students with a stand-alone resource. This chapter, focuses on the free movement of capital and economic and monetary union (EMU). It first considers the movement of capital, one of the four freedoms enshrined in the original Rome Treaty. It then discusses EMU and analyzes the movement towards EMU, and the Treaty provisions that set the legal framework for EMU. The chapter considers arguments for and against EMU and the position of the European Central Bank, concluding with an overview of the stresses and strains of EMU in the light of the banking and financial crisis. The UK version contains a further section analysing issues concerning free movement of capital between the EU and the UK post-Brexit.

Chapter

Cover EU Law

3. The Institutions  

All books in this flagship series contain carefully selected substantial extracts from key cases, legislation, and academic debate, providing students with a stand-alone resource. There are seven principal institutions listed in Article 13 of the Treaty on European Union entrusted with carrying out the tasks of the Union: the European Parliament, the European Council, the Council, the Commission, the Court of Justice of the European Union, the European Central Bank, and the Court of Auditors. This chapter considers their respective roles and the way in which they interrelate, and also looks at other important institutions such as the Economic and Social Committee, the Committee of the Regions, and agencies. The UK version contains a further section analysing the relation between the UK and the institutions post-Brexit.

Chapter

Cover EU Law

21. Free Movement of Capital and Economic and Monetary Union  

All books in this flagship series contain carefully selected substantial extracts from key cases, legislation, and academic debate, providing students with a stand-alone resource. This chapter, focuses on the free movement of capital and economic and monetary union (EMU). It first considers the movement of capital, one of the four freedoms enshrined in the original Rome Treaty. It then discusses EMU and analyzes the movement towards EMU, and the Treaty provisions that set the legal framework for EMU. The chapter considers arguments for and against EMU and the position of the European Central Bank, concluding with an overview of the stresses and strains of EMU in the light of the banking and financial crisis. The UK version contains a further section analysing issues concerning free movement of capital between the EU and the UK post-Brexit.

Chapter

Cover EU Law

3. The Institutions  

All books in this flagship series contain carefully selected substantial extracts from key cases, legislation, and academic debate, providing students with a stand-alone resource. There are seven principal institutions listed in Article 13 of the Treaty on European Union entrusted with carrying out the tasks of the Union: the European Parliament, the European Council, the Council, the Commission, the Court of Justice of the European Union, the European Central Bank, and the Court of Auditors. This chapter considers their respective roles and the way in which they interrelate, and also looks at other important institutions such as the Economic and Social Committee, the Committee of the Regions, and agencies. The UK version contains a further section analysing the relation between the UK and the institutions post-Brexit.

Chapter

Cover Legal Systems & Skills

20. Essential economics and finance  

Scott Slorach, Judith Embley, Peter Goodchild, and Catherine Shephard

This chapter focuses on the economic and financial environment, introducing the fundamentals of economics including an introduction to micro- and macro-economics, supply and demand, economic resources and fiscal and monetary policies, topical economic issues and the relationship between GDP, inflation and unemployment. It then looks at financial markets, with an introduction to stock markets, shares and bonds, and the major players within those markets, particularly the banks. It examines the fundamentals of money and finance: what money is, how to organise and account for it, and what happens when things go wrong. This includes an introduction to business accounts and an examination of corporate and personal insolvency.