- Andrew Godwin, Steve Kourabas and Ian Ramsay, ‘Financial Stability Authorities and Macroprudential Regulation‘ Banking & Finance Law Review, Vol.32.2 (Apr 2017): 223-254.
Abstract: One of the key lessons to come from the Global Financial Crisis (GFC) was that regulation in many jurisdictions was missing an overarching policy framework for financial stability. In response, reformers have increasingly looked to macroprudential policies to plug this regulatory gap. One common feature in the aftermath of the GFC has been for jurisdictions to create financial stability authorities so as to provide regulators with the power to regulate in a manner that prevents financial instability. This paper explores the establishment, rationale and operation of financial stability authorities in the UK and the USA and finds that despite ostensibly being created to deal with the same problem, the UK and USA financial stability authorities exhibit significant differences in their construction and authority, which may impact on their ability to address financial stability.
- Alexandra Neacsu Monkhouse, ‘Central Clearing and the Time Crunch -The Resolution of a Canadian Clearing Member‘ Banking & Finance Law Review, Vol.32.2 (Apr 2017): 255-295.
Abstract: Central clearing of standardized over-the-counter derivatives (OTCs) is the aftermath of the 2008 global financial crisis (GFC). At the 2009 Pittsburgh G20 summit it was decided that, in order to prevent the accumulation of uninsured risk, standardized bespoke capital markets transactions and OTCs, should be centrally cleared through central counterparties (CCPs). This article will analyze the impact of this essential reform on the options of the Canadian financial industry and regulators when faced with banks in difficulty. In Canada, central clearing of OTCs is ensured through a private clearing arrangement between a CCP, namely LCH.Clearnet Limited (LCH), and a clearing member, one of the five big Canadian banks. This article analyzes the consequences of the default provisions of a clearing arrangement for OTC contracts in Canada, in the case of the failure of a clearing member. In the context of recent Canadian experience with crisis management, bankruptcy safe harbour exemptions should be repealed for clearable derivatives in order to avoid hasty taxpayer bailouts instead of industry driven resolutions. This article has five parts. Before delving in the details of bank resolution and clearing, it is necessary to analyze the GFC in Canada and its regulatory consequences. The 2007 Asset Based Commercial Paper (ABCP) crisis in Canada is the starting point of the analysis. CAD$35 billion of ABCP were frozen while the stakeholders negotiated the restructuring of the failing entities. Financial institutions managed to avoid a significant meltdown, without requiring a State bailout. The way Canadians solved the 2007 ABCP crisis was considered a success. The macro-principles governing the current financial infrastructure are preventing systemic risk and ensuring vital functions while avoiding taxpayer bailouts. In the case of derivatives insolvency, there are safe harbour provisions meant to ensure against systemic risk, allowing the counterparties of a failing institution to act immediately and avoid losses resulting from insolvency stays. However, the concrete review of the default provisions of Canadian clearing arrangements will prove that the counterproductive use of safe harbour provisions that occurred during the 2008 GFC will only be enabled by central clearing. Thus, in order to allow similar success to the 2007 ABCP crisis resolution, clearable derivatives should be exempt from safe harbour provisions, therefore enabling failing institutions to restructure in the absence of public intervention.
- Hossein Nabilou, ‘Bank Proprietary Trading and Investment in Private Funds: Is the Volcker Rule a Panacea or Yet Another Maginot Line?‘ Banking & Finance Law Review (Apr 2017): 297.
Abstract: The Volcker Rule is part of the post-financial-crisis regulatory reforms that partly aim at addressing problems associated with proprietary trading by banking entities and the risks associated with the interconnectedness of private funds (e.g., hedge funds and private equity funds) with Large Complex Financial Institutions (LCFIs). This reform aim is pursued by introducing provisions that prohibit proprietary trading and banking entities’ investment in and sponsorship of private funds. These prohibitions have three specific objectives: addressing problems arising from the interconnectedness of private funds with LCFIs; preventing cross-subsidization of private funds by depository institutions having access to government explicit and implicit guarantees; and regulation of conflicts of interest in the relationship between banks, their customers, and private funds. Having studied the provisions of the Volcker Rule in light of its objectives, this article highlights the potential problems with the Rule and provides an early assessment as to how successful the Rule is in achieving its objectives. With respect to achieving these objectives, the Volcker Rule can only be partially successful for various reasons. The foremost reason is the numerous builtin exceptions (i.e., ‘permitted activities’) in the Rule included as a result of political compromises. Although the permitted activities under the Rule are backed by sound economic reasoning, there are serious practical problems with these exceptions. The main problem involves distinguishing prohibited activities from permitted activities. Such determinations require regulatory agencies to make subjective and case-by-case evaluations of activities. It is not known what the costs of such determinations would be in practice or how regulators would react if the costs of such determinations exceed their benefits. Regarding concerns about moral hazard, the Volcker Rule strikes a reasonable balance between preventing such an opportunistic behaviour (i.e., taking advantage of government subsidies) while not stifling the investment by the banking industry in start-up private funds. However, with regard to mitigation of conflicts of interest, the Volcker Rule only marginally addresses such concerns. This limited regulatory intervention in mitigating conflicts of interest could be partially understood in light of the fact that market forces and private law have been successful in addressing conflict-of-interest concerns originating from the relationships between hedge funds and the banking industry.
- Private Lines of Credit for Law Students and Medical Students: A Canadian Perspective
Ben-Ishai, Stephanie; Schwartz, Saul; Werk, Nancy. Banking & Finance Law Review Vol.32.2(Apr 2017): 343-388.
- Viability of Introducing Takaful (Islamic Insurance) in India: Views of Politicians
Salman, Syed Ahmed; Rashid, Hafiz Majdi Ab; Htay, Sheila Nu Nu. Banking & Finance Law Review Vol.32.2 (Apr 2017): 389-405.
- The New Contractual Principle of Good Faith and the Banks
Crawford, Bradley, QC. Banking & Finance Law Review Vol.32.2 (Apr 2017): 407-416.
- The Supreme Court of Canada Rules on When Lenders May Share Personal Information without Violating Federal Privacy Legislation
Simpson, Jeffrey J. Banking & Finance Law Review Vol.32.2 (Apr 2017): 417-422.
- Resolution and Insolvency of Banks and Financial Institutions
Peihani, Maziar. Banking & Finance Law Review Vol.32.2 (Apr 2017): 423-427.
- Transnational Securities Law
Chamorro-Courtland, Christian. Banking & Finance Law Review Vol.32.2 (Apr 2017): 429-434.
- Between Debt and the Devil: Money, Credit and Fixing Global Finance
Gamper, Florian. Banking & Finance Law Review Vol.32.2 (Apr 2017): 435-439.