The revision of the Shareholders Rights Directive (“SRDII”) entered into force in 2017. The SRDII... more The revision of the Shareholders Rights Directive (“SRDII”) entered into force in 2017. The SRDII represents the landing point of a long process started in 2012 with the “Action Plan: European company law and corporate governance” drafted by the EU Commission. <br><br>Already in the Action plan, the two key objectives pursued by the European Legislator were clearly displayed: enhancing companies’ transparency and enhancing shareholders’ engagement. These objectives are, in turn, instrumental in attracting stock market funding, alleviating the dependence of European companies on bank funding. <br><br>This article discusses the implementation of the SRDII into the Italian legal system. The analysis discusses the main choices of the Italian legislation in implementing the SRDII rules and the coordination between these new rules and the Italian legal system, with specific reference to the general corporate law and the existing provisions on listed companies. <...
Shareholders are the residual claimants on the assets of a corporation. Creditors are fixed claim... more Shareholders are the residual claimants on the assets of a corporation. Creditors are fixed claimants whose interest lies in the solvency of the borrower. Consequently, shareholders are usually thought to have optimal incentives to maximise the value of the corporation. The article challenges this common wisdom and proposes to reform bank governance granting (some) ex-ante governance rights to bank creditors. This aims at fine-tuning bank governance and incumbent substantive regulation, in particular the resolution framework for distressed banks, and enhances the quality of bank decision-making in terms of risk-taking. At the same time, the proposed reform should increase the ex-ante credibility of resolution. The second part of the article operationalises this construct focusing on the specific case of the European Banking Union and discusses the design of the governance status of bail-inable creditors. The analysis demonstrates how bail-inable creditors can correct for shareholder...
This paper proposes a radical change in the current remuneration practices, including bail-inable... more This paper proposes a radical change in the current remuneration practices, including bail-inable debt within the variable component of remuneration packages.<br><br>In supporting such claim, the paper sets the economic rationale for remuneration and explains the quintessential role of debt in banking. Against such a theoretical framework, the incumbent EU regulation reveals to be severely flawed.<br><br>Consequently, the paper shows why including bail-inable debt in remuneration packages provides incentives towards optimal risk-taking and develops a detailed policy proposal that focuses both on the content of the regulation and on the possible implementation strategies.
As FinTech promises to increase competition for both banks and investment firms, we consider the ... more As FinTech promises to increase competition for both banks and investment firms, we consider the market failures that emerge from its existence, particularly as they relate to issues of financial stability and investor protection. This chapter discusses the wave of technology-enabled disintermediation of financial services, asking how regulation should cope with the risks associated with disintermediating finance. While regulation of financial intermediaries has been embraced because the industry is particularly prone to market failures, disintermediation has the potential to make current frameworks obsolete. The law & economics problem is twofold: 1) potential market failures, and 2) the issue of enforcement. This chapter discusses the foundations of financial intermediation and the traditional regulatory approaches to both banks and other providers of financial services. Our analysis establishes a distinction between FinTechs working outside and inside the blockchain. For the form...
Bank Resolution is considered a cornerstone of the post-crisis financial regulation; however, it ... more Bank Resolution is considered a cornerstone of the post-crisis financial regulation; however, it is also widely considered ineffective and inefficient in handling bank failures. This article analyses the preventive potential of the resolution framework, specifically focusing on the minimum requirement for own funds and eligible liabilities (MREL). We argue that MREL has a double nature. On the one hand, it should ensure the feasibility of resolution in case of a bank failure. On the other hand, it aims at restricting the funding model of banks, similarly to the other (preventive) capital requirements. By analysing the 2019 reform of the EU banking regulation, we contend that MREL represents an important complement to the rest of the preventive regulatory framework and that the latest reform unleashes such potential. We demonstrate that the new rules on MREL determination and enforcement allow the resolution authority to look after the build-up of systemic risk. The analysis reveals ...
International Institutions: European Union eJournal, 2019
We analyse the tension surrounding the EU trade policy, with a particular focus on Free Trade Agr... more We analyse the tension surrounding the EU trade policy, with a particular focus on Free Trade Agreements (FTAs) that have recently gained considerable attention. The paper highlights different key trade policy objectives, including economic interests and moral values, and the expansive nature of the EU regarding the allocation of competences vis-a-vis Member States. Based on an a corporate versus FTA-law study regarding the right to establishment, our argument is that Member States may feel pressured by their competitors to change their national laws to implement the signed FTAs. This holds true, even if these changes are not strictly required according to the text of the FTA. The state of affairs can be explained through application of Hill’s capability-expectation gap theory. This framework suggests that the current limited EU competences can scarcely serve the EU’s international behaviour, thus causing a lack of coherence between the internal (protecting Member States’ interests)...
European Banking Institute (EBI) Research Paper Series, 2021
The risk retention rule was introduced in the US and the EU as a mechanism to curb the originate-... more The risk retention rule was introduced in the US and the EU as a mechanism to curb the originate-to-distribute model, associated with securitizations and the financial crisis of 2008. This paper argues that besides its original financial stability rationale, the rule has positive spillovers on debt governance and specifically on the incentives to monitor, the design of covenants and the lender’s stance during renegotiation and bankruptcy (the ‘empty creditor’ problem). Risk retention in true sale securitizations makes the strongest case for debt governance, although the existence of various options of retention appears to be associated with varying incentives. The mechanism and effects of risk retention on synthetic securitizations remain ambivalent, given the perverse incentives associated with over-insurance (negative economic ownership). However, the upcoming restriction of double hedging for synthetic STS transactions is a positive development.
The core insight of the new EU framework for bank resolution is to allocate losses to bank’s insi... more The core insight of the new EU framework for bank resolution is to allocate losses to bank’s insiders (bail-inable creditors). This affects both financial stability and the corporate governance of banks. The current academic debate on bank resolution overlooks the relevance of identifying the investors in bail-inable securities (ie who is going to bear losses) and the role of counterparty risk. This article identifies the investors that are better suited to hold those instruments and highlights the trade-offs between the corporate governance role and the threat to financial stability posed by different investors. The article demonstrates that the composition of bail-inable debtholders matters and shows – empirically and theoretically – a transition towards a desirable composition of holders; although a considerable room for improvement remains. This exercise deepens the understanding of the impact of the resolution framework and the importance of counterparties for its credibility a...
Shareholders are the residual claimants on the assets of a corporation. Creditors are fixed claim... more Shareholders are the residual claimants on the assets of a corporation. Creditors are fixed claimants whose interest lies in the solvency of the borrower. Consequently, shareholders are usually thought to have optimal incentives to maximise the value of the corporation.<br><br>The article challenges this common wisdom in banking and proposes to reform bank governance granting (some) ex-ante governance rights to bank creditors. This aims at fine-tuning bank governance and incumbent substantive regulation, in particular the resolution framework for distressed banks, and enhance the quality of decision-making of banks in terms of risk-taking. At the same time, the proposed reform should increase the ex-ante credibility of resolution.<br><br>The second part of the article operationalises this construct focusing on the specific case of the European Banking Union and discusses the design of the governance status of bail-inable creditors.<br><br>The analysis demonstrates how bail-inable creditors can correct for shareholders’ perverse incentives and make debt governance work in banking. The policy proposal advanced in the paper would complement substantive regulation and prudential oversight. The governance role of creditors has the potential to be particularly helpful in preventing disproportionate risk-taking decisions in good times, when regulatory and supervisory standards are lax and systemic risk piles-up.<br>
The market discipline of creditors on the risk-taking behaviour of borrowing banks represents a l... more The market discipline of creditors on the risk-taking behaviour of borrowing banks represents a long-lasting debate. Such a debate gained new attention after the post-crisis stream of reforms concerning resolution policy: creditors should be incentivized to make an optimal effort in monitoring their borrowers and, at the same time, their interests have been aligned with the social ones. Many commentators criticized such an expectation especially in the European context, arguing that the lack of credibility and excessive complexity of the resolution mechanism impair the ability and willingness of creditors to exert a disciplining role. This article aims at taking a step forward in this scientific debate, investigating whether the ability to exert disciplining activity is inherently impaired by the design of the Directive. In other words, this research wants to assess if, assuming an ideal environment, creditors would have optimal incentives to monitor banks’ behaviour and to react ac...
Bank Resolution is considered a cornerstone of the post-crisis financial regulation; however, it ... more Bank Resolution is considered a cornerstone of the post-crisis financial regulation; however, it is also widely considered ineffective and inefficient in handling bank failures. This article analyses the preventive potential of the resolution framework, specifically focusing on the minimum requirement for own funds and eligible liabilities (MREL). We argue that MREL has a double nature. On the one hand, it should ensure the feasibility of resolution in case of a bank failure. On the other hand, it aims at restricting the funding model of banks, similarly to the other (preventive) capital requirements. By analysing the 2019 reform of the EU banking regulation, we contend that MREL represents an important complement to the rest of the preventive regulatory framework and that the latest reform unleashes such potential. We demonstrate that the new rules on MREL determination and enforcement allows the resolution authority to look after the build-up of systemic risk. The analysis reveals that MREL can serve both micro- and macro-prudential purposes. Finally, we argue that the current institutional architecture represents the main impeding factor for the new regulation to efficiently work, curbing the positive preventive potential of MREL.
Lo scritto esamina i recenti interventi delle Autorità europee preposte alla vigilanza del settor... more Lo scritto esamina i recenti interventi delle Autorità europee preposte alla vigilanza del settore bancario nel contesto della pandemia da Covid-19.
The revision of the Shareholders Rights Directive (“SRDII”) entered into force in 2017. The SRDII... more The revision of the Shareholders Rights Directive (“SRDII”) entered into force in 2017. The SRDII represents the landing point of a long process started in 2012 with the “Action Plan: European company law and corporate governance” drafted by the EU Commission. <br><br>Already in the Action plan, the two key objectives pursued by the European Legislator were clearly displayed: enhancing companies’ transparency and enhancing shareholders’ engagement. These objectives are, in turn, instrumental in attracting stock market funding, alleviating the dependence of European companies on bank funding. <br><br>This article discusses the implementation of the SRDII into the Italian legal system. The analysis discusses the main choices of the Italian legislation in implementing the SRDII rules and the coordination between these new rules and the Italian legal system, with specific reference to the general corporate law and the existing provisions on listed companies. <...
Shareholders are the residual claimants on the assets of a corporation. Creditors are fixed claim... more Shareholders are the residual claimants on the assets of a corporation. Creditors are fixed claimants whose interest lies in the solvency of the borrower. Consequently, shareholders are usually thought to have optimal incentives to maximise the value of the corporation. The article challenges this common wisdom and proposes to reform bank governance granting (some) ex-ante governance rights to bank creditors. This aims at fine-tuning bank governance and incumbent substantive regulation, in particular the resolution framework for distressed banks, and enhances the quality of bank decision-making in terms of risk-taking. At the same time, the proposed reform should increase the ex-ante credibility of resolution. The second part of the article operationalises this construct focusing on the specific case of the European Banking Union and discusses the design of the governance status of bail-inable creditors. The analysis demonstrates how bail-inable creditors can correct for shareholder...
This paper proposes a radical change in the current remuneration practices, including bail-inable... more This paper proposes a radical change in the current remuneration practices, including bail-inable debt within the variable component of remuneration packages.<br><br>In supporting such claim, the paper sets the economic rationale for remuneration and explains the quintessential role of debt in banking. Against such a theoretical framework, the incumbent EU regulation reveals to be severely flawed.<br><br>Consequently, the paper shows why including bail-inable debt in remuneration packages provides incentives towards optimal risk-taking and develops a detailed policy proposal that focuses both on the content of the regulation and on the possible implementation strategies.
As FinTech promises to increase competition for both banks and investment firms, we consider the ... more As FinTech promises to increase competition for both banks and investment firms, we consider the market failures that emerge from its existence, particularly as they relate to issues of financial stability and investor protection. This chapter discusses the wave of technology-enabled disintermediation of financial services, asking how regulation should cope with the risks associated with disintermediating finance. While regulation of financial intermediaries has been embraced because the industry is particularly prone to market failures, disintermediation has the potential to make current frameworks obsolete. The law & economics problem is twofold: 1) potential market failures, and 2) the issue of enforcement. This chapter discusses the foundations of financial intermediation and the traditional regulatory approaches to both banks and other providers of financial services. Our analysis establishes a distinction between FinTechs working outside and inside the blockchain. For the form...
Bank Resolution is considered a cornerstone of the post-crisis financial regulation; however, it ... more Bank Resolution is considered a cornerstone of the post-crisis financial regulation; however, it is also widely considered ineffective and inefficient in handling bank failures. This article analyses the preventive potential of the resolution framework, specifically focusing on the minimum requirement for own funds and eligible liabilities (MREL). We argue that MREL has a double nature. On the one hand, it should ensure the feasibility of resolution in case of a bank failure. On the other hand, it aims at restricting the funding model of banks, similarly to the other (preventive) capital requirements. By analysing the 2019 reform of the EU banking regulation, we contend that MREL represents an important complement to the rest of the preventive regulatory framework and that the latest reform unleashes such potential. We demonstrate that the new rules on MREL determination and enforcement allow the resolution authority to look after the build-up of systemic risk. The analysis reveals ...
International Institutions: European Union eJournal, 2019
We analyse the tension surrounding the EU trade policy, with a particular focus on Free Trade Agr... more We analyse the tension surrounding the EU trade policy, with a particular focus on Free Trade Agreements (FTAs) that have recently gained considerable attention. The paper highlights different key trade policy objectives, including economic interests and moral values, and the expansive nature of the EU regarding the allocation of competences vis-a-vis Member States. Based on an a corporate versus FTA-law study regarding the right to establishment, our argument is that Member States may feel pressured by their competitors to change their national laws to implement the signed FTAs. This holds true, even if these changes are not strictly required according to the text of the FTA. The state of affairs can be explained through application of Hill’s capability-expectation gap theory. This framework suggests that the current limited EU competences can scarcely serve the EU’s international behaviour, thus causing a lack of coherence between the internal (protecting Member States’ interests)...
European Banking Institute (EBI) Research Paper Series, 2021
The risk retention rule was introduced in the US and the EU as a mechanism to curb the originate-... more The risk retention rule was introduced in the US and the EU as a mechanism to curb the originate-to-distribute model, associated with securitizations and the financial crisis of 2008. This paper argues that besides its original financial stability rationale, the rule has positive spillovers on debt governance and specifically on the incentives to monitor, the design of covenants and the lender’s stance during renegotiation and bankruptcy (the ‘empty creditor’ problem). Risk retention in true sale securitizations makes the strongest case for debt governance, although the existence of various options of retention appears to be associated with varying incentives. The mechanism and effects of risk retention on synthetic securitizations remain ambivalent, given the perverse incentives associated with over-insurance (negative economic ownership). However, the upcoming restriction of double hedging for synthetic STS transactions is a positive development.
The core insight of the new EU framework for bank resolution is to allocate losses to bank’s insi... more The core insight of the new EU framework for bank resolution is to allocate losses to bank’s insiders (bail-inable creditors). This affects both financial stability and the corporate governance of banks. The current academic debate on bank resolution overlooks the relevance of identifying the investors in bail-inable securities (ie who is going to bear losses) and the role of counterparty risk. This article identifies the investors that are better suited to hold those instruments and highlights the trade-offs between the corporate governance role and the threat to financial stability posed by different investors. The article demonstrates that the composition of bail-inable debtholders matters and shows – empirically and theoretically – a transition towards a desirable composition of holders; although a considerable room for improvement remains. This exercise deepens the understanding of the impact of the resolution framework and the importance of counterparties for its credibility a...
Shareholders are the residual claimants on the assets of a corporation. Creditors are fixed claim... more Shareholders are the residual claimants on the assets of a corporation. Creditors are fixed claimants whose interest lies in the solvency of the borrower. Consequently, shareholders are usually thought to have optimal incentives to maximise the value of the corporation.<br><br>The article challenges this common wisdom in banking and proposes to reform bank governance granting (some) ex-ante governance rights to bank creditors. This aims at fine-tuning bank governance and incumbent substantive regulation, in particular the resolution framework for distressed banks, and enhance the quality of decision-making of banks in terms of risk-taking. At the same time, the proposed reform should increase the ex-ante credibility of resolution.<br><br>The second part of the article operationalises this construct focusing on the specific case of the European Banking Union and discusses the design of the governance status of bail-inable creditors.<br><br>The analysis demonstrates how bail-inable creditors can correct for shareholders’ perverse incentives and make debt governance work in banking. The policy proposal advanced in the paper would complement substantive regulation and prudential oversight. The governance role of creditors has the potential to be particularly helpful in preventing disproportionate risk-taking decisions in good times, when regulatory and supervisory standards are lax and systemic risk piles-up.<br>
The market discipline of creditors on the risk-taking behaviour of borrowing banks represents a l... more The market discipline of creditors on the risk-taking behaviour of borrowing banks represents a long-lasting debate. Such a debate gained new attention after the post-crisis stream of reforms concerning resolution policy: creditors should be incentivized to make an optimal effort in monitoring their borrowers and, at the same time, their interests have been aligned with the social ones. Many commentators criticized such an expectation especially in the European context, arguing that the lack of credibility and excessive complexity of the resolution mechanism impair the ability and willingness of creditors to exert a disciplining role. This article aims at taking a step forward in this scientific debate, investigating whether the ability to exert disciplining activity is inherently impaired by the design of the Directive. In other words, this research wants to assess if, assuming an ideal environment, creditors would have optimal incentives to monitor banks’ behaviour and to react ac...
Bank Resolution is considered a cornerstone of the post-crisis financial regulation; however, it ... more Bank Resolution is considered a cornerstone of the post-crisis financial regulation; however, it is also widely considered ineffective and inefficient in handling bank failures. This article analyses the preventive potential of the resolution framework, specifically focusing on the minimum requirement for own funds and eligible liabilities (MREL). We argue that MREL has a double nature. On the one hand, it should ensure the feasibility of resolution in case of a bank failure. On the other hand, it aims at restricting the funding model of banks, similarly to the other (preventive) capital requirements. By analysing the 2019 reform of the EU banking regulation, we contend that MREL represents an important complement to the rest of the preventive regulatory framework and that the latest reform unleashes such potential. We demonstrate that the new rules on MREL determination and enforcement allows the resolution authority to look after the build-up of systemic risk. The analysis reveals that MREL can serve both micro- and macro-prudential purposes. Finally, we argue that the current institutional architecture represents the main impeding factor for the new regulation to efficiently work, curbing the positive preventive potential of MREL.
Lo scritto esamina i recenti interventi delle Autorità europee preposte alla vigilanza del settor... more Lo scritto esamina i recenti interventi delle Autorità europee preposte alla vigilanza del settore bancario nel contesto della pandemia da Covid-19.
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