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
18. Security
Ross Cranston, Emilios Avgouleas, Kristin van Zweiten, Theodor van Sante, and Christoper Hare
Chapter
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
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
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
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
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
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
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.
