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Sound Banking

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Sound Banking Sound Banking Sound Banking Rebecca Söderström Dissertation presented at Uppsala University to be publicly examined in Auditorium Minus, Gustavianum, Akademigatan 3, Uppsala, Friday, 12 May 2017 at 10:15 for the degree of Doctor of Laws. The examination will be conducted in English. Faculty examiner: Professor Nina Dietz Legind. Abstract Söderström, R. 2017. Sound Banking. 370 pp. Uppsala: Juridiska fakulteten, Uppsala universitet. ISBN 978-91-506-2627-8. Banks are subject to a comprehensive body of legal rules and conduct their business under constant supervision of authorities. Since the financial crisis of 2008, the number of rules governing banking has grown and the structures of supervision have likewise been enhanced. This thesis analyses various aspects of the regulation and supervision of banks, and focuses especially on soundness as a normative concept to regulate banks. Soundness is a legal prerequisite in, for example Swedish, law and appears in relation to banking in many other jurisdictions. The aims of this thesis are to examine how the normative concept of soundness functions in the regulation and supervision of banks, to present general insights into how banking regulation and supervision function and how the financial crisis of 2008 has affected banking regulation and supervision. The thesis proposes a taxonomy of soundness – confidence – stability to describe the normative context of soundness. The taxonomy is connected to the theoretical arguments for bank regulation and is used as a tool to analyse three areas of banking regulation: authorisation, capital requirements and banks in trauma. The three areas correspond to the outline of the thesis according to The Story of the Bank, which includes the formation, operation and failure of banks. In each regulatory area, relevant EU legislation as well as Swedish, Danish, British and American legislation are examined. Each regulatory area also includes case studies, where selected decisions and sanctions on individual banks in the various jurisdictions are analysed. The investigations in the thesis are made partly from a law and economics perspective. The investigation shows that soundness is a connective concept with various and fragmented functions in the regulation of banks. Related to authorisation, soundness is emphasised in the requirements of suitability of a bank’s qualified owners, directors and managers. In the area of capital requirements, soundness is fostered by standards for structures and systems related to banks’ risk management. Banks in trauma are addressed by regulation aiming at restoring soundness in a financial sense. The thesis also discusses the macro-prudential turn in banking regulation since the financial crisis and how legal rules and supervision can promote sound banking. Keywords: banking, banking law, banking regulation, financial supervision, law and economics Rebecca Söderström, Department of Law, Box 512, Uppsala University, SE-75120 Uppsala, Sweden. © Rebecca Söderström 2017 ISBN 978-91-506-2627-8 urn:nbn:se:uu:diva-317738 (http://urn.kb.se/resolve?urn=urn:nbn:se:uu:diva-317738) Förord Mitt allra varmaste tack går till min huvudhandledare professor Daniel Stattin. Utan din introduktion till akademin hade jag nog inte hamnat på denna bana, som känts så rätt. Vilket bra samarbete vi har haft! Det har blivit många långluncher och samtal genom åren. Tack för ditt generösa stöd och för att du har hjälpt mig hitta min egen väg i avhandlingsprojektet. Tack för din rättframma handledning och frågor som: ”Vad blir det här för avhandling?”. Tack för alla goda råd om sådant man inte kan läsa sig till. Tack för omtänksam planering som fungerat när min familj har växt. Tack! Min biträdande handledare professor Torbjörn Ingvarsson förtjänar också mitt varmaste tack. Torbjörn, du har engagerat dig i mitt projekt långt mycket mer än vad som förväntas av en biträdande handledare. Inte minst har du väglett och utmanat mig i metod och vetenskapssyn. Även här har det blivit många samtal. Tack för all tid och kraft du har lagt i mitt projekt. Tack för din uppmuntran och tillit till mitt skrivande. Ditt engagemang i forskning och undervisning smittar verkligen av sig. En rad personer har på olika sätt bidragit till avhandlingen och jag vill rikta ett stort tack till er. Adjungerad professor Carl Svernlöv för granskning av min tvåårstext. Dr. iur. Paulina Dejmek-Hack vid Europeiska Kommissionen som bistått med material och goda råd. Docent Gustaf Sjöberg för granskning av avhandlingstext inför mitt slutseminarium, samt övriga deltagare vid seminariet. Professor Jesper Lau Hansen vid Köpenhamns universitet, för möjligheten att arbeta en månad i er fina forskningsmiljö. Docent Jan Bjuvberg, docent Jan Marton, ekon. dr. Mikael Wendschlag, advokat Helena Jung Engfeldt, samt doktoranderna Jonatan Schytzer, Shruti Kashyap, Ylva Arvidsson, Peter Sand-Henriksen och Niels Skovmand Rasmussen för värdefulla kommentarer på delar av avhandlingen. Mina kollegor, särskilt doktoranderna Sabina Hellborg, Shruti Kashyap, Emma Ahlm, Lovisa Halje och Markus Ehrenpil för goda kollegiala (och andra) samtal och gemenskap genom åren. Markus Forslund, som skapat den fina bilden till min bok. Administrativa personalen på Juridiska institutionen samt Dag Hammarskjöld och Juridiska biblioteket, för professionell och vänlig hjälp. Tack till Juridiska fakulteten och institutionen, för förtroendet och förutsättningarna att genomföra forskningsprojektet samt till Emil Heijnes Stiftelse för rättsvetenskaplig forskning, för generöst bidrag. Min familj har betytt oerhört mycket för mig under mina forskarstudier. Särskilt tack till mina föräldrar Ethel och Torbjörn Mattebo, för allt ni gett och ger – inte minst för att ni är så fina morföräldrar till mina barn. Patric, tack för att jag får dela livet med dig. Bland det bästa jag vet är att samtala och diskutera med dig, ofta om barnen, inte sällan om banker, och helst över en tallrik ”fredagspasta”. I år firar vi 10 år som gifta, det om något är värt att firas. Och våra älskade barn Oscar och Edith, ni kommer alltid först. Solvik, Höga Kusten, påsken 2017 Table of contents Förord ........................................................................................................... 5 1 Introduction ................................................................................... 17 1.1 Opening remarks ............................................................................. 17 1.1.1 Problem description ................................................................ 17 1.1.2 General aim and objectives ..................................................... 20 1.1.3 Outline ..................................................................................... 22 1.2 Objects of study ............................................................................... 24 1.2.1 Banks and regulation ............................................................... 24 1.2.2 The Story of the Bank ............................................................. 25 1.2.3 Comparative objects ................................................................ 27 2 Methods .......................................................................................... 29 2.1 Introduction ..................................................................................... 29 2.2 Methodological departure points ..................................................... 29 2.2.1 Introductory remarks ............................................................... 29 2.2.2 Basic views on the law and legal concepts ............................. 30 2.2.3 The regulatory approach ......................................................... 35 2.2.4 The comparative studies ......................................................... 37 2.3 Law and economics ......................................................................... 39 2.3.1 Introductory remarks ............................................................... 39 2.3.2 Law and economics in this study ............................................ 40 2.4 Issues related to the sources of law ................................................. 43 2.4.1 Introductory remarks ............................................................... 43 2.4.2 Legal sources and the financial markets ................................. 43 2.4.3 Value of legal material ............................................................ 45 3 The financial and legal context .................................................... 47 3.1 Introduction ...................................................................................... 47 3.2 Financial markets and capital markets ............................................. 48 3.2.1 Introductory remarks ............................................................... 48 3.2.2 An efficient financial market .................................................. 50 3.2.2.1 The meaning of the term efficient ............................................... 50 3.2.2.2 Irrational behaviour by investors ................................................. 52 3.2.2.3 Market liquidity ........................................................................... 53 3.2.2.4 Market integrity ........................................................................... 53 3.2.2.5 Financial stability ........................................................................ 54 3.3 Banking and banks ........................................................................... 55 3.3.1 Introductory remarks ..............................................................
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