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Chapter

Iris Chiu and Joanna Wilson

This introductory chapter provides an overview of banking law and regulation. Banking law and regulation covers private commercial law developed through banking custom, standards of good practice, and the common law, which together have a long history of shaping and refining the rights and obligations of banks and their customers. Consumer protection lies at the heart of many banking law and regulatory initiatives, which often seek to address or rebalance the superior bargaining position of banks in the bank–customer relationship. In recent decades, public regulatory sources of law in banking regulation have become multi-layered and complex, ranging from international to European and national regulation. The chapter also describes the nature of the banking business as well as its types and scope.

Chapter

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

This chapter focuses on the customer and the services which banks offer to customers. It begins by filling in some of the details about the customers of banks and modern banking services. In this context it gives attention to how the relationship between banks and their customers may be characterized as a matter of law. Contract emerges from this as the overarching feature of the relationship; thus, the second and third sections of the chapter discuss banking contracts and their regulation. The final section turns to a specific banking service, the taking of deposits. Historically this has been the core banking service, and deposit-taking has been central to any definition of banking.

Chapter

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

This chapter discusses bank structural reform. Most structural reform initiatives that have been undertaken since 2008 were aimed at reversing the effects of the repeal of the Glass–Steagall Act in the late 1990s and of the EU legislation that promoted universal banking. The chapter first considers the financial stability concerns and the mechanics of contemporary structural reform legislation in the USA, the UK, and the EU, and the actual legal framework underpinning these reforms. It then covers the regulation of bank involvement in derivatives markets. Today, derivatives regulation is a clear part of macroprudential regulation to the extent that centralized clearing and settlement and increased transparency battle opacity and interconnectedness and limit systemic risk. The remainder of the chapter covers deposit insurance, bank corporate governance, risk control, and executive remuneration.

Chapter

This chapter assesses international banking supervision. The solution to the issues in international banking has been the development of procedures that seek to encourage coordination or cooperation between national supervisors. This has been facilitated by the creation of international organisations that have allowed large numbers of countries to discuss, agree, and promote not only supervisory standards, but also regulatory rules. Together, these organisations constitute the international financial architecture that seeks to ensure financial stability by addressing a number of different issues. Two of the key bodies in international banking regulation include the Basel Committee on Banking Supervision (BCBS) and the Financial Stability Board (FSB). Ultimately, the proliferation of international banking in recent decades, and the need to ensure that banking supervision takes place on a consolidated basis, has led to calls for the creation of a single global regulator.

Chapter

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

This chapter first sets out seven cases that illustrate some of the legal problems arising from international banking. Many of these cases are not new, nor are most confined to banking. The chapter outlines of how these problems have been handled followed by an examination of the broader principles underlying the resolution of the harder cases. Comity, balancing, cooperation, and harmonization are considered. Jurisdictional clashes over banking matters continue to occur. Some are resolvable in accordance with established legal doctrine, some in accordance with bilateral and multilateral agreements between states. There remains a question mark over how much is achievable in reducing the conflict by pursuing notions of jurisdiction, comity, and the balancing of interests. Rather, shared concerns on substantive issues, such as money laundering and terrorist financing, are more likely to lead to deference by, and cooperation between, jurisdictions.

Chapter

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.

Book

Sir Ross Cranston, Emilios Avgouleas, Kristin van Zwieten, Christopher Hare, and Theodor van Sante

Principles of Banking Law provides an authoritative take on banking and services law, with coverage of global banking regulation, payment systems, capital markets, and trade finance. The text takes an international perspective, helping locate domestic banking law and financial law in its wider context. It takes a themed, policy-oriented approach to the subject. The text is composed of four parts. The first part looks at banks and bank regulation. Part II considers banks and customers. Part III examines payment and payment systems. The final part looks at banks and finance.

Chapter

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

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

Payment and banking generally go hand-in-hand. Except for relatively small-value transactions, where cash, payment cards, and, increasingly, forms of e-money are used, payments are usually made through the banking system. This chapter analyzes some of the legal problems arising with payment through the banking system. The first section sketches the basic elements of payment and the way banks make payment. The second section turns to some specific issues — how payment obligations are discharged, whether payment instructions can be countermanded, the availability of funds to payees, and the completion of payment as between banks. The third section examines clearing and settlement systems. In the main the focus of this chapter is on large payments, rather than retail payments.

Chapter

This chapter explores the European banking supervision and regulatory architecture. The aim of the introduction of European policy and law in bank regulation is was to build a single market in financial services and to give effect to the freedom of movement of capital. In the midst of the global financial crisis in 2008, the European Commission established a high-level group of experts chaired by Jacques de Larosière to recommend a blueprint for financial supervision in the EU going forward. The de Larosière Report provided a comprehensive analysis of the weaknesses in the financial sector in the EU and recommended stronger regulatory governance in many areas. The chapter then considers the Banking Union, a policy that introduces a new supervisory architecture for euro-area banks.

Chapter

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

This chapter begins with a discussion of the reasons for bank regulation. Traditionally the focus of bank regulation has been the protection of individual institutions' stability from a depositors' run, and of depositors and deposit guarantee schemes from incurring losses in the event of bank failures. Another fundamental goal was the protection of taxpayers from a public bailout and from the kind of moral hazard that arises when public bank rescues are likely. However, in recent years, and especially since the global financial crisis the focus of bank regulation has broadened to include eliminating too-big-to-fail institutions; increasing capital cushions and introducing liquidity requirements; and enhancing the resilience of the financial system to withstand system-wide shocks. The remainder of the chapter covers prudential regulation, capital regulation, the different phases of the Basel capital framework, and the total loss absorbing capacity standard.

Chapter

Iris Chiu and Joanna Wilson

This chapter examines structural regulation and reform in the UK. Structural reforms refer to direct regulatory intervention into a bank’s business structure. This applies particularly to large banking groups in the UK. In brief, large banking groups in the UK may be compelled by regulation to restructure themselves for the purposes of preserving key economic functions that are socially important while maintaining their competitive edge. Although structural reforms are aimed first and foremost at containing systemic risk and improving the resolvability of banks, these reforms may also go some way towards changing the culture of banks, especially retail banks, so that the conduct of retail banks may be more aligned with the public interest in their social utility functions. The chapter then considers other options in structural reforms, which include the Volcker Rule implemented in the US as well as the superseded Glass–Steagall Act.

Book

Iris H-Y Chiu and Joanna Wilson

Banking Law fully addresses the current landscape of banking law and regulation post the 2008 financial crisis. Coverage is balanced between transactional, regulatory, and private law topics across UK banking law, as well as European and international law. The text aims to cover everything needed for a full understanding. Topics covered include: the banker–customer relationship, payment, regulatory architecture in the UK and the European Union, macroprudential regulation, banking culture, governance, incentives, crisis management and resolution, and combatting financial crime.

Chapter

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

This chapter discusses banking supervision in practice. It focuses on two jurisdictions: the UK and the European Banking Union (EBU), and considers in particular the type of powers enjoyed by the UK and EBU regulators, and the way they exercise them in their supervisory approaches. In the process the chapter highlights loopholes in the respective regimes and to some extent evaluates their effectiveness. On 1 April 2013 the Financial Services Act 2012 came into force, removing the Financial Services Authority and delivering a new regulatory structure for the UK, which comprises the Prudential Regulation Authority responsible for microprudential regulation and supervision of banks, building societies, and investment firms; and the Financial Conduct Authority, in addition to a financial stability (macroprudential) body within the Bank of England, the Financial Policy Committee. The EBU brought about the centralization of bank supervision and resolution within the Eurozone. The trigger for the establishment of the EBU was the Eurozone debt crisis.

Chapter

Iris Chiu and Joanna Wilson

This chapter examines payment methods, which refer to the mechanisms, procedures, and organisations that are used to enable parties to discharge their payment obligations. While there are a vast range of different payment mechanisms, the most common methods are cheques, payment cards, and the electronic transfer of funds. A cheque is a written order from an account holder instructing their bank to pay a specified sum of money to one or more named beneficiaries. Meanwhile, payment cards—small pieces of plastic that are used in financial transactions—have revolutionised the way that people pay for goods or services. Lastly, the transfer of funds refers to the movement of a credit balance from one account to another, which occurs by adjusting the balances of the respective party’s accounts. The chapter then looks at recent innovations in the payment services industry relating to open banking and third-party providers.

Chapter

Alicia Hinarejos

This chapter explains how the Economic and Monetary Union (EMU) was set up and the flaws within the system. It gives a brief overview of the euro crisis and its relationship to, and consequences for, EMU. Finally, it looks to the current debate on the future of EMU and the EU, including the development of an EU banking union.

Chapter

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

This chapter is concerned with horizontal cooperation agreements which the competition authorities in the EU and the UK may be prepared to countenance. There may be circumstances in which competitors cooperate with one another in a way that delivers economic benefits, not just for themselves, but for consumer welfare as well. After a discussion of joint ventures, the chapter discusses the application of Article 101 to horizontal cooperation agreements. It refers, in particular, to the European Commission’s Guidelines on Horizontal Cooperation Agreements and discusses, in turn, information exchange, research and development agreements, production agreements, purchasing agreements, commercialisation agreements, standardisation agreements, sustainability agreements and other cases of permissible horizontal cooperation. It concludes with a brief look at the treatment of horizontal cooperation agreements under UK competition law.