Over the last 20 years, the International Monetary Fund’s legal department has made a significant contribution to the development of banking laws in the Fund’s membership.
Summarizing the authors' experience in this field, this paper highlights common weaknesses in banking legislation and suggests solutions. In discussions with country officials in the context of law reform, the argument is often made that one or more specific problems with the local banking law are due to the local circumstances of that jurisdiction. However, authors' experience has shown that most weaknesses of banking laws are hardly idiosyncratic to individual countries. On the contrary, many countries share similar problems, and these are thus really part of a more global pattern. In fact, the shared problems are caused more by inherent challenges in designing and drafting banking laws than by local circumstances. This paper will seek to illustrate those common issues, and why the “but we are different” argument does not always carry weight.
The meta message of this paper is that clear and robust legal underpinnings buttress the effectiveness of banking supervision. The drafting of a banking law raises many questions of financial policy, for which robust international best practice has emerged in the form of the BCP. The drafters of banking laws will however also face complex legal challenges that also need to be addressed, and for which guidance is not always available. This paper hopefully makes a useful contribution in this regard.
Another message is that while a clear and robust banking law is a sine qua non, the banking law cannot be considered in isolation from the wider legal context— banking law is thus not a sufficient legal underpinning for supervision. In the end, banking supervisory law is applied administrative law, and weaknesses in the general administrative law framework will inevitably affect the banking law. A similar logic applies mutatis mutandis to civil and commercial law, including company law. Authorities would therefore be well advised to acknowledge the broadness of the necessary legal underpinnings, including by dedicating the required resources to building a strong legal function within their supervisory agencies.
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