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SecuredTransactionsLawandCapitalRequirementsEnhancingAccesstoCreditandFinancialStability

GiulianoG.Castellano,PhD,PhDAssistantProfessor,WarwickLawSchool

ResearchAssociate,Ecole Polytechnique (Paris,i3-CRG)

15-17March2017Vienna

UNCITRAL

FourthInternationalColloquiumonSecuredTransactions

OutlineI. Objectives,scopesandapproaches– SecuredTransactionsLawReforms(UNCITRALModelLaw)– InternationalCapitalRequirements(BaselAccords)

II. Theregulatorytreatmentofcollateral– Collateralaseligiblecreditprotection– Dissonanceswithmodernsecuredtransactionslaw

III. Coordinationmechanisms– International,national,andfirm-level– Buildinglegalcapacityatthenationallevel

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I.OBJECTIVES,SCOPESANDAPPROACHES

SecuredTransactionsLawReformsandInternationalCapitalRequirements

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SecuredTransactionsLaw- UNCITRALModelLaw-

Accesstocredit

CapitalRequirements- BaselAccords-

Financialstability

Concerninganyindividualorentity

LegalcertaintyTransparencyRightsandobligationsthroughconsensualarrangements

Concerningonlyregulatedcreditinstitutions(banks)

SoundnessofbanksandthebankingsystemRisk-basedapproachRegulatingbanksfrom‘within’

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TheBaselFrameworkRisk-WeightedAssets(RWA)TohighriskscorrespondhighlevelsofcapitalCollateralascreditprotectionLiquidityriskandoperationalrisk(amongothers)tobeassessed

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II.THEREGULATORYTREATMENTOFCOLLATERAL

SecurityRightsandCapitalRequirements

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CollateralAsEligibleCreditProtection

EligibleCollateral FirstPriority ClearSecurity

Rights

RapidlyEnforceable

LiquidSecondaryMarket

RiskReduction

LowerCapitalCharges

UNCITRALModelLawisthefirststepNotallcollateralreducebankscapitalrequirements

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TheProblemSuspiciousattitudetowardsmovables,dueto:– Assumedlimitedliquidity– Assumedlimitedsecondarymarkets– Fearofcyclicaldepreciation

Regulationmayestablishdifferentformalities– E.g.,detaileddescriptionofencumberedassets

Lackofcoordinationatthenationallevel

Banksmaynotfullybenefitfromsecuredtransactionslawreforms

PolicyConcerns

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III.COORDINATIONMECHANISMSBuildingLegalCapacity

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International

National

Firm-level

• UNCITRAL• BaselCommittee(BIS)

• ImplementationofModelLaw&BaselAccords

• Coordinationamonglegislativeacts

• Supervisorydiscretion

• Banksmayuseowninternalmodelstocalculatecapitalcharges

• Contractualmechanismstoreducecreditrisk

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BuildingLegalCapacityattheNationalLevel

IRBMethodologies(moresophisticated)Guidancetoidentifysufficientlyliquid

assets Guidanceoverthemodels

SupervisoryDiscretion(generalapproach)

Listof‘eligiblecollateral’(lowriskassets)

DefiningrequirementsinlinewithUNCITRAL ‘Provisioning’rules

BaselAccords

SupervisoryDiscretion(Pillar2) InternalRisk-Based(IRB)Methodologies

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DrGiulianoG.Castellanog.g.f.castellano(at)warwick.ac.uk

Thankyou!