The present study contains a further (second) update of the comprehensive overview of the evolution of European (EU) banking law under the influence of public international banking law. It is structured in two Parts.

Part One, titled “Public International Financial Law (Regulation)” contains four Sections: Section A
gives the definition, presents the various branches, and undertakes a brief overview of the historical
evolution, in three periods, of public international financial law. The following Section B discusses
the four levels of the making and enforcement of public international financial law (political decisionmaking – adoption of the rules – coordination – indirect enforcement of rules) and its sources, with emphasis on the ‘Compendium of Standards and Codes’ of the Financial Stability Board (FSB). Section C presents then the international fora adopting international financial standards and the Committee on the Global Financial System. The Basel Committee on Banking Supervision, which is the main forum setting standards pertaining to public international banking law, is discussed in more details in Section D. The new Appendix I briefly discusses the measures taken at global level in relation to financial stability amidst the current pandemic crisis.

Part Two, titled “European (EU) Banking Law (Regulation)” is more detailed and structured in six
Sections: Section A gives the definition and the branches of EU financial law and then undertakes a
brief overview of its historical evolution, in four periods. Appendix I discusses in more details the
procedure for the making of EU financial law after the recent (2007-2009) international financial
crisis. Section B presents the developments in EU financial law as a result of the ongoing fiscal crisis in the euro area, which leads to the presentation of the (European) Banking Union (BU), including the still pending issues in relation thereto. The following Sections C and D present, in turn and briefly, the two main pillars of the BU, namely the Single Supervisory Mechanism (SSM) and the Single Resolution Mechanism (SRM). Section E contains an analysis of the Deposit Guarantee Schemes Directive (DGSD) of 2014 and Section F briefly presents the Emergency Liquidity Assistance (ELA) mechanism, which refers to last resort lending to viable credit institutions in the euro area by the national central banks – members of the Eurosystem. The financial stability measures taken at EU level amidst the current pandemic crisis are discussed in the new Appendix III.

The cut-off date for information included therein is 31 December 2020.

The Evolution of European (EU) Banking Law under the Influence of (Public) International Banking Law: A Comprehensive Overview (Third fully updated edition)

Finance has been transformed by digitalization and datafication over the past five decades. The latest wave of technology in finance (Fintech) is re-shaping the sector at an unprecedented pace. This digital financial transformation brings about structural changes, with positive and negative effects, likely even more in the high-potential markets of the Middle East and North Africa.

Fintech can stimulate competition and product variety with positive outcomes for societies and economies. The fundamental changes taking place in the financial system, however, call for the design of adequate approaches to Fintech innovation. An ecosystem is required that allows innovation balanced with financial inclusion, financial stability, market integrity and consumer protection. 

This toolkit presents novel regulatory and market approaches policymakers, regulators, and development professionals can adopt to enable safe Fintech innovation.

Regulatory frameworks will determine the future of Fintech. Following principles from global good practice (mainly activity-based, proportional, and technology-neutral regulation), regulatory approaches in sequenced stages help to create pathways for innovative Fintech firms.

First, regulators ought to identify and modernize unsuitable regulation based on a regulatory impact assessment that determines whether legacy rules remain useful.

Second, proportional regulation, reflected in provisions for market stability and integrity depending on the extent of risks underlying the regulated activity, create supportive pathways for new, particularly inclusive non-bank financial services.

Third, an Innovation Hub with experts of the regulatory authority is best suited to guide Fintech firms through the regulatory maze, yield valuable insights into market innovations, and assess possibilities of dispensation.

Fourth, testing and piloting regimes allow to apply leniency in a wait-and-see or test-and-learn approach to assist innovative firms. Authorities can further decide to tolerate innovations by licensed institutions and possibly by start-ups by extending on a case-by-case basis waivers or no-action-letters which declare certain activities as permissible or suspend certain rules.

Fifth, a regulatory sandbox, which standardizes the scope of testing and piloting, allows regulators to create a tightly defined safe space for granting dispensation from specific regulatory requirements for innovative firms that qualify.

Sixth, restricted licences allow feasible innovative firms to further develop their client base and financial and operational resources in a controlled manner.

Seventh, a full licence is essential for innovative firms as size requires and permits. Over these stages, as regulatory rigour and costs increase so tend to do Fintech firms’ maturity and ability to cope with risks and compliance, while maintaining a level playing field for licensed entities.

Demand and supply side factors will eventually propel innovative entrepreneurship and Fintech growth. Market approaches to Fintech innovation combine the support of financial and digital literacy in the population, cybersecurity capacities in the sector, acceleration programmes and investor-friendliness in the business environment, and technology clusters or digital centres in public-private- academic partnerships.

Sequenced reforms that are informed by global good practise, responsive to the local context and that contribute to regionally consistent frameworks, are policymakers best pick in support of an enabling ecosystem for Fintech. Concerted efforts will enable innovative financial service providers to tap the market and scale as well as Fintech to be beneficial for financial inclusion, competition and economic development across the region.

/pdf/fintech-toolkit-smart-regulatory-and-market-approaches-to-525tolb02j.pdf

Fintech Toolkit: Smart Regulatory and Market Approaches to Financial Technology Innovation

This article discusses reviews of financial inclusion in India to identify how it serves the households and economy for growth. A predominant role is being played by financial inclusion policy for inclusive growth all over the world to transform financially excluded population which is numbered as 2.5 billion, of which, one third is populated in India. Financial inclusion is originated from the initiatives of United Nations, which extensively reported the key goals of the policy as access to wide range of financial services to all at an affordable cost, which started its operation effectively in India in the year 2005. As India is the land of rural supremacy, it is mandate to provide suitable financial services for economic growth which will increase the income and living standards of the households. Consequently, greater financial inclusion in rural segments is crucial meanwhile the focus on urban and suburban regions is also required. The core objective of this study is to review literature on financial inclusion in the Indian perspective, discussed by different researchers all over the world and also to highlight the awareness level of financial inclusion, digital financial inclusion and barriers confronted to financial access. The vision of the Reserve Bank for the year 2020 is to open more than new 600 million customer accounts. It is expected from the government to encourage the banks to adopt financial inclusion for proper financial assistance to achieve full inclusion in this decade.

Financial Inclusion in India: A Review

The recovery of the Eurozone (EZ) economy has made even more pressing the tackling of its debt overhang with the bulk of over 1 trillion Non-Performing Loans (NPLs) concentrated in the more vulnerable economies of the EZ periphery. There is clearly a need to adopt a more radical approach to resolving NPLs than merely augmenting supervisory tools and national legal frameworks. The discussion about the feasibility of country-based or Pan-European Asset Management Companies (AMCs) to tackle legacy NPLs has recently intensified. Yet political objections premised on fears of debt mutualisation, the structural and legal questions surrounding the possible establishment of AMCs, and differing recovery rates and levels of market transparency within the EZ have led to the dismissal of the idea by the European Council. This article discusses the merits and shortcomings of AMCs in tackling NPLs and proposes a comprehensive structure for a Pan-European “bad bank” with virtually ring-fenced country subsidiaries to ensure burden sharing without debt mutualisation. The proposed “bad bank” structure intends to resolve a host of governance, valuation, and transparency problems that would otherwise surround a “bad bank” solution. Also, the proposed scheme is in effective compliance with the EU state aid regime and could lead, if implemented, to the alleviation of the EZ debt overhang to stimulate credit growth.

Utilizing AMCs to tackle Eurozone’s legacy non-performing loans

Technology is reshaping money and payment systems in unprecedented ways. Catalysts include the launch of Bitcoin in 2009, the evolution of both decentralised and centralised technologies, the announcement of Libra in 2019, live trials of China’s Digital Yuan, and COVID-19, both in 2020.

This paper focusses on how technology might reshape money and payments going forward. It considers the policy issues and choices associated with cryptocurrencies, stablecoins and sovereign digital currencies and emphasises there is no single model for sovereign digital currency design. The catalysts reshaping monetary and payment systems challenge regulators. While Bitcoin and its thousands of progenies could be ignored safely by regulators, Facebook’s proposal for Libra, a global stablecoin, brought an immediate and potent response from regulators globally. This proposal by the private sector to move into the traditional preserve of sovereigns – the creation of currency – was always likely to trigger such a regulatory response and also the launch of sovereign digital currencies by central banks. China has moved first with its Digital Yuan – an initiative that may well in time provoke a chain of central bank digital currency issuances around the globe. 

COVID-19 is driving digitalisation to new heights, particularly in electronic payments. In this context, we argue that central banks should focus not on rolling out novel new forms of sovereign digital currencies, but rather on transforming their payment systems. Further into the future, we expect domestic money and payment systems to involve public central banks cooperating with (new and old) private entities to launch digital currencies which underpin better monetary and payment systems at the domestic and international levels.

Sovereign Digital Currencies: The Future of Money and Payments?

The global, euro-zone, and Asian financial crises have highlighted the importance of appropriate regulatory design and coverage for financial stability. In particular, in the wake of the global financial crisis the Group of Twenty (G20) and the Financial Stability Board (FSB) and its constituents (such as the Basel Committee on Banking Supervision, the International Organization of Securities Commissions, and the International Association of Insurance Supervisors) have or are in the process of developing international regulatory standards and guidance in relation to financial regulation and financial stability. This Article will discuss the range of international initiatives in the context of the overall design of a system of financial regulation, focusing on approaches to the regulation of systemically important financial institutions (SIFIs). Of these, nonbank finance has proven to be a major source of potential systemic risk, and the G20/FSB is currently addressing this in the context of “shadow banking,” an issue of increasing concern throughout the world. Finally, this Article will discuss financial regulatory structure in the context of financial regulatory design, particularly as it relates to SIFIs, shadow banking, and financial conglomerates.

https://papers.ssrn.com/sol3/Delivery.cfm/SSRN_ID2534217_code524849.pdf?abstractid=2534217

Addressing Systemic Risk: Financial Regulatory Design

Addressing systemic risk in East Asia: financial regulatory design

Over the past two decades a variety of banking system rescue approaches have been used, including in the 1997 Asian financial crisis, the 2008 global financial crisis, and the 2010 European debt crisis. By analysing the resolution of these crises as well as the approach to addressing bad loans in the People’s Republic of China, this paper provides a new perspective on the common belief that bailouts are invariably harmful to public funds or excessively conducive to moral hazard. Depending on the form of bailout, bank restructuring, and fiscal backstop, resolutions can be an effective means to restore a banking system. This paper argues that in a systemic financial crisis, a combination of balance sheet restructuring and the use of asset management companies to deal with non-performing loans is often the best choice. However, a fully-fledged resolution that triggers the bail-in procedure remains the best approach for non-systemically important financial institution failures which take place outside of systemic crises, namely when the failure is idiosyncratic.

/pdf/overstating-moral-hazard-lessons-from-two-decades-of-banking-535b5wbcza.pdf

Overstating Moral Hazard: Lessons from Two Decades of Banking Crises

Abstract Banks have so far weathered well the financial turbulence caused by COVID-19 while at the same time being central in the economic and financial response. As the crisis moves from its initial phase as a short-term liquidity shock, the financial sector is facing increasing volumes of non-performing loans, raising the spectre of a banking solvency crisis. In economies already burdened with low-quality assets, the COVID-19 fallout is intensifying existing problems with legacy loans heightening the risk of a banking crisis. These issues are now being worsened by the impact of inflation and the invasion of Ukraine. Thus, addressing increasing volumes of bad loans, while supporting the proper functioning of the financial system, is a major challenge with systemic repercussions for a range of economies. This paper identifies a great paradox: since the bank rescues of the 2008–9 Global Financial Crisis there has been a disproportionate focus on the liability side of bank balance sheets through resolution measures such as bail-in and the accumulation of bail-inable debt. Post-crisis bank resolution regimes have overlooked solutions lying within the asset side of bank balance sheets. This paper analyses historical evidence to argue that concentrating on a liability-focused approach to the exclusion of asset-side solutions is ill-conceived. An excessive accumulation of non-performing loans on the asset side of bank balance sheets inevitably renders resolution interventions on the liability/equity side ineffective or at the very least insufficient to maintain banking system viability and financial stability. Bank asset restructuring involving the use of asset management companies, asset protection schemes and even capital injections can play a critical role in achieving an expeditious restoration of banking systems’ health following a major macroeconomic, sustainability or financial crisis. 

https://link.springer.com/content/pdf/10.1007/s40804-022-00255-1.pdf

COVID-19, Macroeconomic and Sustainability Shocks, Moral Hazard and Resolution of Systemic Banking Crises: Designing Appropriate Systems of Public Support

Fiscal Policy and Financial System

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