Pub Date : 2019-02-14DOI: 10.1093/HE/9780198784722.003.0012
I. Chiu, Joanna B. Wilson
This chapter assesses how regulation addresses sub-optimal internal organisation and governance at banks in order to change behaviour. The Basel Committee defines the role of internal control at banks to be for three purposes: to assist in achieving profitability and performance, to ensure the reliability and integrity of financial information relating to the bank, and to assist in external compliance with regulations. Meanwhile, corporate governance may be defined as ‘a system by which companies are directed or controlled’. As a framework for determining exercise of power, decision-making, and accountability, corporate governance is important in the shaping of an overall organisational culture. The chapter also considers the regulation of bankersʼ remuneration. Although such regulation affects bankers individually, there are aspects of ‘collective’ policy in remuneration regulation that seek to control organisational freedom in giving rewards, as well as aspects that affect individual incentives.
{"title":"12. Regulating the governance, structures, and incentives at banks","authors":"I. Chiu, Joanna B. Wilson","doi":"10.1093/HE/9780198784722.003.0012","DOIUrl":"https://doi.org/10.1093/HE/9780198784722.003.0012","url":null,"abstract":"This chapter assesses how regulation addresses sub-optimal internal organisation and governance at banks in order to change behaviour. The Basel Committee defines the role of internal control at banks to be for three purposes: to assist in achieving profitability and performance, to ensure the reliability and integrity of financial information relating to the bank, and to assist in external compliance with regulations. Meanwhile, corporate governance may be defined as ‘a system by which companies are directed or controlled’. As a framework for determining exercise of power, decision-making, and accountability, corporate governance is important in the shaping of an overall organisational culture. The chapter also considers the regulation of bankersʼ remuneration. Although such regulation affects bankers individually, there are aspects of ‘collective’ policy in remuneration regulation that seek to control organisational freedom in giving rewards, as well as aspects that affect individual incentives.","PeriodicalId":143746,"journal":{"name":"Banking Law and Regulation","volume":"121 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2019-02-14","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"114461575","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2019-02-14DOI: 10.1093/he/9780198784722.003.0002
I. Chiu, Joanna B. Wilson
This chapter discusses the relationship between a bank and its customer. The Bills of Exchange Act 1882 defines a banker to include ‘a body of persons whether incorporated or not who carry on the business of banking’. Meanwhile, upon the opening of an account, a person will be deemed to have become a customer of the bank and there is no requirement for a habitual course of dealings. Although the relationship between a bank and its customer is primarily governed by contract law, there may be circumstances in which the bank undertakes additional obligations, thereby taking the relationship beyond the remit of contract law such that the bank becomes subject to fiduciary duties of trust and loyalty. The chapter then considers the fiduciary nature of the banker–customer relationship as well as undue influence.
{"title":"2. The banker–customer relationship","authors":"I. Chiu, Joanna B. Wilson","doi":"10.1093/he/9780198784722.003.0002","DOIUrl":"https://doi.org/10.1093/he/9780198784722.003.0002","url":null,"abstract":"This chapter discusses the relationship between a bank and its customer. The Bills of Exchange Act 1882 defines a banker to include ‘a body of persons whether incorporated or not who carry on the business of banking’. Meanwhile, upon the opening of an account, a person will be deemed to have become a customer of the bank and there is no requirement for a habitual course of dealings. Although the relationship between a bank and its customer is primarily governed by contract law, there may be circumstances in which the bank undertakes additional obligations, thereby taking the relationship beyond the remit of contract law such that the bank becomes subject to fiduciary duties of trust and loyalty. The chapter then considers the fiduciary nature of the banker–customer relationship as well as undue influence.","PeriodicalId":143746,"journal":{"name":"Banking Law and Regulation","volume":"83 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2019-02-14","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"131657006","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2019-02-14DOI: 10.1093/he/9780198784722.003.0011
I. Chiu, Joanna B. Wilson
This chapter focuses on the regulatory framework for bank culture and conduct. Bank culture profoundly affects the outcomes that regulators are concerned with: the prudential safety of banks and banksʼ conduct in the marketplace. Such culture is forged by individual decision-making and behaviour at banks, as well as the collective ethos and environment at the organisation. The regulation of individuals comprises of two regimes, a more stringent one for ‘senior managers’ as compared to ‘certified persons’. Senior managers and certified persons are approved according to fitness and propriety criteria, and their approval can be revoked for failing to meet these criteria on a continuing basis. They are also subject to an individual code of conduct and can be personally liable, subject to fines and/or full or partial prohibition from working in the financial sector. The chapter then looks at the development of soft law in banking culture and ethics.
{"title":"11. The regulatory framework for bank culture and conduct","authors":"I. Chiu, Joanna B. Wilson","doi":"10.1093/he/9780198784722.003.0011","DOIUrl":"https://doi.org/10.1093/he/9780198784722.003.0011","url":null,"abstract":"This chapter focuses on the regulatory framework for bank culture and conduct. Bank culture profoundly affects the outcomes that regulators are concerned with: the prudential safety of banks and banksʼ conduct in the marketplace. Such culture is forged by individual decision-making and behaviour at banks, as well as the collective ethos and environment at the organisation. The regulation of individuals comprises of two regimes, a more stringent one for ‘senior managers’ as compared to ‘certified persons’. Senior managers and certified persons are approved according to fitness and propriety criteria, and their approval can be revoked for failing to meet these criteria on a continuing basis. They are also subject to an individual code of conduct and can be personally liable, subject to fines and/or full or partial prohibition from working in the financial sector. The chapter then looks at the development of soft law in banking culture and ethics.","PeriodicalId":143746,"journal":{"name":"Banking Law and Regulation","volume":"3 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2019-02-14","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"121393684","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2019-02-14DOI: 10.1093/he/9780198784722.003.0008
I. Chiu, Joanna B. Wilson
This chapter studies capital adequacy regulation, which prescribes that banks can only take certain levels of risk that are supported by adequate levels of capital. In this way, capital adequacy rules provide a form of assurance that banks with adequate levels of capital are likely able to withstand losses that may result from their risk-taking. The Basel Committee developed its first set of capital adequacy standards in the Basel I Capital Accord of 1988. It was subsequently overhauled into the Basel II Capital Accord in 2003. After the global financial crisis of 2007–9, the Basel II Accord’s shortcomings were extensively discussed and the Basel Committee introduced a package of reforms in order to plug the gaps in Basel II. The Basel III package is the most extensive suite of micro-prudential regulation reforms seen to date, as they deal with capital adequacy and a range of other micro-prudential standards.
{"title":"8. Micro-prudential regulation I","authors":"I. Chiu, Joanna B. Wilson","doi":"10.1093/he/9780198784722.003.0008","DOIUrl":"https://doi.org/10.1093/he/9780198784722.003.0008","url":null,"abstract":"This chapter studies capital adequacy regulation, which prescribes that banks can only take certain levels of risk that are supported by adequate levels of capital. In this way, capital adequacy rules provide a form of assurance that banks with adequate levels of capital are likely able to withstand losses that may result from their risk-taking. The Basel Committee developed its first set of capital adequacy standards in the Basel I Capital Accord of 1988. It was subsequently overhauled into the Basel II Capital Accord in 2003. After the global financial crisis of 2007–9, the Basel II Accord’s shortcomings were extensively discussed and the Basel Committee introduced a package of reforms in order to plug the gaps in Basel II. The Basel III package is the most extensive suite of micro-prudential regulation reforms seen to date, as they deal with capital adequacy and a range of other micro-prudential standards.","PeriodicalId":143746,"journal":{"name":"Banking Law and Regulation","volume":"66 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2019-02-14","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"115534824","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2019-02-14DOI: 10.1093/he/9780198784722.003.0004
I. Chiu, Joanna B. Wilson
This chapter focuses on the other core function of the banking business alongside taking in deposits from customers: lending. The traditional forms of lending include overdrafts, fixed-term loans, and syndicated loans. An overdraft generally involves an extension of credit by a bank to its customer via the customer’s current account. A fixed-term loan, as the name suggests, is a loan made for a fixed period of time. Meanwhile, a syndicated loan involves two or more banks that each contributes towards making a single loan to a borrower. The chapter then considers lender liability and the different forms of security a bank can use to realise the repayment of a loan in the event of default by the borrower. It also looks at recent innovations in the lending market that offer a competitive alternative to traditional bank lending, including payday lending and peer-to-peer lending.
{"title":"4. Banks and finance","authors":"I. Chiu, Joanna B. Wilson","doi":"10.1093/he/9780198784722.003.0004","DOIUrl":"https://doi.org/10.1093/he/9780198784722.003.0004","url":null,"abstract":"This chapter focuses on the other core function of the banking business alongside taking in deposits from customers: lending. The traditional forms of lending include overdrafts, fixed-term loans, and syndicated loans. An overdraft generally involves an extension of credit by a bank to its customer via the customer’s current account. A fixed-term loan, as the name suggests, is a loan made for a fixed period of time. Meanwhile, a syndicated loan involves two or more banks that each contributes towards making a single loan to a borrower. The chapter then considers lender liability and the different forms of security a bank can use to realise the repayment of a loan in the event of default by the borrower. It also looks at recent innovations in the lending market that offer a competitive alternative to traditional bank lending, including payday lending and peer-to-peer lending.","PeriodicalId":143746,"journal":{"name":"Banking Law and Regulation","volume":"21 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2019-02-14","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"128411608","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2019-02-14DOI: 10.1093/HE/9780198784722.003.0005
I. Chiu, Joanna B. Wilson
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.
{"title":"5. International banking supervision and regulatory architecture","authors":"I. Chiu, Joanna B. Wilson","doi":"10.1093/HE/9780198784722.003.0005","DOIUrl":"https://doi.org/10.1093/HE/9780198784722.003.0005","url":null,"abstract":"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.","PeriodicalId":143746,"journal":{"name":"Banking Law and Regulation","volume":"15 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2019-02-14","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"130607237","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2019-02-14DOI: 10.1093/HE/9780198784722.003.0010
I. Chiu, Joanna B. 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.
{"title":"10. Structural regulation","authors":"I. Chiu, Joanna B. Wilson","doi":"10.1093/HE/9780198784722.003.0010","DOIUrl":"https://doi.org/10.1093/HE/9780198784722.003.0010","url":null,"abstract":"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.","PeriodicalId":143746,"journal":{"name":"Banking Law and Regulation","volume":"52 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2019-02-14","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"124851648","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2019-02-14DOI: 10.1093/he/9780198784722.003.0009
I. Chiu, Joanna B. 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.
{"title":"9. Micro-prudential regulation II","authors":"I. Chiu, Joanna B. Wilson","doi":"10.1093/he/9780198784722.003.0009","DOIUrl":"https://doi.org/10.1093/he/9780198784722.003.0009","url":null,"abstract":"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.","PeriodicalId":143746,"journal":{"name":"Banking Law and Regulation","volume":"26 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2019-02-14","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"127810269","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2019-02-14DOI: 10.1093/he/9780198784722.003.0001
I. Chiu, Joanna B. 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.
{"title":"1. Introduction to banking law and regulation","authors":"I. Chiu, Joanna B. Wilson","doi":"10.1093/he/9780198784722.003.0001","DOIUrl":"https://doi.org/10.1093/he/9780198784722.003.0001","url":null,"abstract":"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.","PeriodicalId":143746,"journal":{"name":"Banking Law and Regulation","volume":"12 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2019-02-14","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"130212275","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2019-02-14DOI: 10.1093/HE/9780198784722.003.0013
I. Chiu, Joanna B. 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.
{"title":"13. Crisis management and resolution","authors":"I. Chiu, Joanna B. Wilson","doi":"10.1093/HE/9780198784722.003.0013","DOIUrl":"https://doi.org/10.1093/HE/9780198784722.003.0013","url":null,"abstract":"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.","PeriodicalId":143746,"journal":{"name":"Banking Law and Regulation","volume":"32 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2019-02-14","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"121337382","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
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