1.

FACULTEIT RECHT EN CRIMINOLOGIE

“New tools to take away the punch

bowl before the party gets out of

hand”: a quest to define ‘socially

useful’ as a legal specialty for banks

Kristina Loguinova

Academiejaar 2013-2014

Promotor: Prof. Dr. P. Jorion Co-promotor: Prof. Dr. A. François

i

ii

“However camouflaged, the reality is always the same: a new division of humanity into

Spartans and Helots.”1

1 A. SPINELLI and E. ROSSI, “For a Free and United Europe. A draft manifesto” in A. SPINELLI and E. ROSSI (eds.),

The Ventotene Manifesto, The Altiero Spinelli Institute for Federalist Studies, 1988, 24.

ii.

PREFACE

“All I have is voice”, wrote W. H. Auden in his poem ‘September I, 1939’ to commemorate

the suffering caused due to the Second World War. In so doing, he fulfilled the role of the

artist by giving a voice to the victims. Moreover, he evoked sympathy through an art piece

after witnessing a horrific event in order to prevent a recurrence.

Since law differs from art, in the sense that ‘a voice’ can be enforced on the members of a

certain society, given that it is loud enough, I want to propose a concrete legal solution to

avoid a repetition of the last financial crisis in this thesis. Those who lost their houses, their

savings and their jobs deserve more than a poem, more than some vague abstract norm

without practical effect; these victims deserve a concrete, binding and enforceable legal

framework in the banking sector that ensures its socially responsible and useful functioning.

With this thesis I also hope to remind those who have forgotten, that society needs to be

preserved at all costs since it is this association with others that ensures the survival of the

human species. Law therefore needs to be used as an instrument to protect the wellbeing of

our entire society instead of certain private interests.

I would like to thank my promoter Professor Jorion and my co-promoter Professor François

for guiding me through this adventure and never letting me down when it came to questions

and corrections. Words do not suffice to express my gratitude to Lord Adair Turner, Lina

Morales, Ambassador Al Mazroui, Dr. Viktoria Baklanova, MEP Deva, Professor Van der

Borght, Professor Gesquière, Professor Cornelis and Julien Alexandre for their precious time

and insights.

Most of all I owe to my inner sanctum. Mum, Dad, and Ludwig, thank you for your

inexhaustible support and patience through all the tantrums connected to socially useful

banking. Gavin, thank you for your unconditional love and for showing me that ‘it is just a

ride’.

Kristina Loguinova

iii.

TABLE OF CONTENTS

PREFACE .................................................................................................................. ii

TABLE OF CONTENTS ................................................................................................ iii

INTRODUCTION ....................................................................................................... 1

PART I: THE LEGAL PRINCIPLES OF SECURITY CAPITALISM ............................................ 9

1. The déjà-vu effect of security capitalism ............................................................. 9

2. Precursor of security capitalism: last stage of individual capitalism ........................ 10

2.1. THE FRENCH REVOLUTION ........................................................................ 10

2.1.1. Liberté, égalité and fraternité (sociéte) .................................................. 10

2.1.2. The misuse of the revolutionary principles ............................................. 11

2.2. THE EPOCH OF HOMO OECONOMICUS AND ORGANIZED ‘FREE’ COMPETITION .. 12

2.2.1. The rationality of the homo oeconomicus ............................................... 12

2.2.2. The ‘free’ market ............................................................................... 15

3. The rise of security capitalism .......................................................................... 17

4. Contemporary regulatory capture ..................................................................... 18

4.1. THE BASEL COMMITTEE ............................................................................ 18

4.1.1. The implicit binding force of the Basel Committee’s decisions .................... 19

4.1.2. Regulatory capture of the Basel Committee ............................................ 21

5. Making security capitalism work for the whole of society ...................................... 24

5.1. A DESCRIPTION OF SECURITY CAPITALISM ................................................. 24

5.2. THE NEED TO SOLVE THE PROBLEMS INHERENT TO SECURITY CAPITALISM ..... 25

PART II: THE LEGAL FRAMEWORK OF BANKS .............................................................. 26

1. De lege lata ................................................................................................... 26

1.1. DEONTOLOGICAL RULES OF CONDUCT FOR BANKS IN BELGIUM ..................... 26

1.1.1. Ineffectiveness of deontological codes of conduct .................................... 27

1.2. RULES OF CONDUCT FOR BANKS IN THE MIFID ............................................ 28

1.2.1. Article 19 MiFID ................................................................................. 28

1.2.2. Infectiveness of article 19 MiFID ........................................................... 30

1.3. THE LEGAL FORM OF BANKS IN BELGIUM .................................................... 32

1.3.1. The principle of specialty ..................................................................... 32

iv.

1.3.2. Commercial company obligation ........................................................... 33

1.3.3. Preference for the capitalist company form ............................................ 34

1.3.3.1. The legal specialty of capitalist company forms .................................... 38

1.3.3.2. The shareholders of banks ................................................................ 41

1.3.3.3. Company interest ............................................................................ 43

1.4. THE NEW BELGIAN BANKING LAW: THE SEPERATION OF ACTIVITIES .............. 45

2. De lege ferenda ............................................................................................. 47

2.1. THE MULTIPLE-INTEREST MODEL OF THE CORPORATION ............................... 47

2.2. THE BELGIAN VEHICLE CREATED BY THE LEGISLATOR TO COMBINE PROFIT AND

CARE FOR SOCIETY: THE VSO ............................................................................ 48

PART III: SOCIALLY USEFUL BANKS ........................................................................... 53

1. Support to bring banks back to their ‘socially useful’ roots .................................... 53

1.1. THE FADING SOCIALLY USEFUL ORIGINS OF BANKS ..................................... 53

1.2. POLITICAL SUPPORT ................................................................................. 53

1.2.1. Justification of the ‘socially useful’ initiatives in the banking sector ............ 55

1.3. SUPPORT FROM SOCIETY .......................................................................... 57

1.3.1. Public opinion as a material source of law .............................................. 58

2. The role of the law in obliging banks to be socially useful ..................................... 60

2.1. LAW AS A MEANS TO SOCIAL ENDS ............................................................ 60

2.2. THE ROLE OF THE LEGISLATOR IN THE IDENTIFICATION OF THE ‘RIGHT’

INTERESTS ...................................................................................................... 62

2.3. THE PRACTICABILITY OF LAW RELIES ON DEFINITIONS ................................ 63

3. Defining and implementing ‘socially useful’ ........................................................ 65

3.1. THE DEFINITION ...................................................................................... 65

3.2. THE IMPLEMENTATION: THE ESSENTIAL EUROPEAN LEGAL REFORM ............... 68

3.3. A POTENTIAL CONSEQUENCE OF THE IMPLEMENTATION FOR THE BELGIAN

LEGAL ORDER ................................................................................................... 70

CONCLUSION ......................................................................................................... 73

BIBLIOGRAPHY ....................................................................................................... 75

APPENDIX I ............................................................................................................ 99

APPENDIX II ......................................................................................................... 106

APPENDIX III ........................................................................................................ 110

1.

INTRODUCTION

1. Financial law in general has several meanings. It can be strictly understood as the

law encompassing bank and payment services, monetary law, credit law, securities law

and insurance law2. More broadly it can be described as measures to protect the private

saver and to safeguard the trust of the public in financial institutions by limiting the

‘principle of party autonomy’3 in a number of financial transactions and by placing

financial institutions that deal with private savings under government control4. Indeed, it

is the function of all law to limit the will of both natural and legal persons that dictates

their conduct5 in order to facilitate social organization. Alas, the worst worldwide financial

and economic crisis of the last 70 years6 has shown that financial law in particular was

not sufficiently developed to safeguard ‘society’7 in its entirety from economic

degradation. As Roscoe POUND would phrase it: financial law failed to satisfy human

demands, moreover it failed in ‘securing “‘interests’8 (...) with the least of friction and the

least of waste, whereby the means of satisfaction may be made to go as far as

possible.”9

2. In September 2009 Lord Adair TURNER, last head of the Financial Services Authority

(the former British regulator of financial markets), proposed “new tools to take away the

2 V. COLAERT, De Rechtsverhouding Financiële Dienstverlener – Belegger, Brugge, die Keure, 2011, 14. 3 The principle of party autonomy (‘wilsautonomie’) is a general principle of law meaning that everybody has

the discretion to arrange their legal position within the limits of law containing a command or a prohibition (the

parties to a contract are free to decide upon its content based on their own discretion for instance). The

application of this general principle of law into written legal rules originated in the context of the French

Revolution and served as the basis for the principle of contractual freedom among many other derivative legal

rules: L. CORNELIS, Algemene theorie van de verbintenis, II dln., Antwerpen, Intersentia, 2000, 17-19. 4 H. SCHILTZ and R. LEYSEN, Handboek van financiële wetgeving, Antwerpen, Kluwer, 1984, 8; H. SCHILTZ and R.

LEYSEN, Inleiding tot de financiële wetgeving, Antwerpen, Kluwer rechtswetenschappen, 1988, 92. 5 R. VAN BOVEN and L. DHAENE, “Drijfveren voor de oprichting van een vennootschap met rechspersoonlijkheid: is

er nog plaats voor de wilsvrijheid van partijen?” in B. TILLEMAN, A. BENOIT-MOURY, O. CAPRASSE and N. THIRION

(eds.), De oprichting van vennootschappen en de opstartfase van ondernemingen, Brugge, die Keure, 5. 6 Adair TURNER. 2009. “Mansion House” speech, City Banquet, London, 22 September 2009. 7 A society is understood in this thesis as a “group of people who are dependent on one another for survival and

(...) well being and who share a particular way of life”: S. NANDA and R.L. WARMS, Cultural Anthropology,

Belmont, Cengage Learning, 2014, 6. 8 Interests are defined by POUND as all claims and desires which human beings try to satisfy and which must

therefore be taken into account by society in its human relations if organized society is to endure. These

interests are further broken down into individual, social and public interests: J. A. GARDNER, “The Sociological

Jurisprudence of Roscoe Pound (Part 1)”, Vill.L.Rev. 1961, 22; JULIUS ROSENTHAL FOUNDATION FOR GENERAL LAW,

My Philosophy of Law: credos of sixteen American Scholars, Boston, Boston Law Book Co., 1941, 247-253; R.

POUND, Outline of Lectures on Jurisprudence, Cambridge, Harvard University Press, 1920, 82-83. FRANÇOIS has

remarked how the concept of interest in general is very hard to define. He remarks how doctrine very vaguely

describes it as a material or moral advantage that one or more legal subjects derive from a natural or legal

fact, improving their (legal) situation: A. FRANÇOIS, Het Vennootschapsbelang in het Belgische

Vennootschapsrecht, Antwerpen, Intersentia Rechtswetenschappen, 1999, 165. 9 R. POUND, Interpretations of Legal History, New York, Macmillan, 1923, 157-158.

2.

punchbowl before the party [would get] out of hand”10 again. Controversially, he

introduced the concept of “socially useful”11 in the financial sector. Although Lord Adair

TURNER was not specific about what they do, “stated that whatever financial firms do,

should be ‘socially useful’”12, during his Mansion House Speech. Protruding on this

initiative there have been no attempts to concretize or to define ‘socially useful’ nor have

there been any propositions to make the concept somehow practically enforceable on

financial firms13. Rather the tendency developed to be “long on problems and short on

solutions”14 in concern to “what finance actually is, how it operates”15 and how we can

“democratize finance, so as to make it work better for all of us.”16

3. This lacuna shall therefore be the subject of investigation in my thesis. More

specifically I will attempt to look beyond the crisis from an innovative angle by employing

the methodology of a ‘design research’17 to define the legally meaningless phrase

‘socially useful’ in order to turn it into actions in regard to ‘banks’18, out of all the

financial firms, because of their key role19 in the crisis of 2008, their changing function

and their increasing importance in our economic and financial system today20.

10 A. TURNER, A. HALDANE, P. WOOLLEY, S. WADHWANI, C. GOODHART, A. SMITHERS, A. LARGE, J. KAY, M. WOLF, P.

BOONE, S. JOHNSON and R. LAYARD, The Future of Finance: The LSE Report, London, LSE, 2010, 29. 11 Adair TURNER. 2009. “Mansion House” speech, City Banquet, London, 22 September 2009. 12 P. JORION, Why Stewardship of Finance?, Antwerpen, Intersentia, 2012, 3. 13 Lord Adair TURNER did define “socially useless” as “delivering no economic value at the collective social level”

and gave several examples of socially useless activities in the financial sector like tax and capital arbitrage: A.

TURNER et al., The Future of Finance: The LSE Report, 33; Adair TURNER. 2013. “Socially useful financial

instruments and activities” interview, 12 February 2013 (Appendix I). 14 Andrew HALDANE. 2012. “Occupy Economics, ‘Socially useful banking’” speech, Bank of England, London, 29

October 2009. 15 P. JORION, Why Stewardship of Finance?, Antwerpen, Intersentia, 2012, 1-2. 16 R.J. SHILLER, Finance and the Good Society, Princeton, Princeton University Press, 2012, 2. How finance can

be used to advance the goals of the good society is the core research question of SHILLER’s work. 17 A design research as a type of research method for a thesis involves the creation or design of something in

order to remedy a certain situation or to realize a particular situation. 18 In this thesis a ‘bank’ is synonymous for a ‘credit institution’ defined as “an undertaking the business of

which is to take deposits or other repayable funds from the public and to grant credits for its own account” in

art. 4(1) point (1) Regulation of the European Parliament and of the Council nr. 575/2013/EC, 26 June 2013 on

prudential requirements for credit institutions and investment firms and amending regulation (EU) No

648/2012, Pb.L. 27 June 2013, episode 176, 18 (hereinafter: ‘Banking Regulation’). Art. 13(2) Directive of the

European Parliament and of the Council nr. 2013/36/EU, 26 June 2013 on access to the activity of credit

institutions and the prudential supervision of credit institutions and investments firms, amending directive

2002/87/EC and repealing directives 2006/48/EC and 2006/49/EC, Pb.L. 27 June 2013, episode 176, 355

(hereinafter: ‘Banking Directive’) specifies that banks can be legal persons but do not require to be so. In this

thesis it is taken as a premise that all banks in the Europe Union are legal persons. 19 “If it looks like a bank and quacks like a bank it has got to be subject to bank-like safeguards.” With this

amusing quote from Lord Adair TURNER, CERFONTAINE begins his article about the important role that shadow

banking has played in the subsequent crisis. This can by no means be denied but falls out of the scope of this

thesis: J. CERFONTAINE, “De instelling ‘bank’” in EVBFR – BELGIUM, 20 jaar Bankwet, Antwerpen, Intersentia,

2013, 17. 20 T. GYOHTEN, “Global Financial Markets: the Past, the Future, and Public Policy Questions” in F.R. EDWARDS and

H.T. PATRICK (eds.), Regulating International Financial Markets: Issues and Policies, Dordrecht, Kluwer

3.

4. Since it simply “ne suffit pas d’énoncer une définition; il faut la préparer et il faut la

justifier”21, the thesis will commence with a portrayal of the context in which the subject

can be situated in order to justify my attempt. The first part consists out of a declarative

journey with the purpose to exemplify why law, the background condition constitutional

for “the framework within which economic conditions are conducted”22, allowed bank

industry interests to prevail over social interests in the first place. Apropos some aspects

of this declaration briefly touch on the question “how commercial, banking, and similar

money-making pursuits [did] become honourable at some point in the modern age after

having stood condemned or despised as greed, love of lucre and avarice for centuries

past?”23

The underlying reasons of how it could happen that society is all of a sudden in need of

extensive measures of protection from an industry in existence to facilitate its

proceedings (in this thesis it is taken as a premise that banks were initially destined to be

the stewards of society, striving to achieve long term goals and safeguarding every

citizen in addition to the bank’s clients24) at a time when it is assuming the largest

position in our social structure25 than it has ever had, need to be exposed.

The indicated undertaking involves examining the history of capitalism26 and its

(economic) ‘ideologies’27 that dominated the pre-crisis years through a translation into

Academic Publishers, 1992, 13; A. TURNER et al., The Future of Finance: The LSE Report, 14; K. MACOURS, “De

interne organisatie van banken” in EVBFR – BELGIUM, 20 jaar Bankwet, Antwerpen, Intersentia, 2013, 39. 21 H. POINCARÉ, La science selon Henri Poincaré: La science et l’hypothèse – La valeur de la science – Science et

method, Paris, Dunod, 2013, 411. 22 A. HUNT, “Marxist theory of law” in D. PATTERSON (ed.), A Companion to Philosophy of Law and Legal Theory,

Oxford, Blackwell Publishers, 1999, 363. 23 A.O. HIRSCHMAN, The Passions and the Interests. Political Arguments for Capitalism before its Triumph,

Oxfordshire, Princeton University Press, 2013, 9. “More than two thousand years ago, the Greek philosopher

Aristotle noted that ‘the trade of the petty usurer is hated with most reason: it makes profit from currency

itself, instead of making it from the process which currency was meant to serve. Their common characteristic is

obviously their sordid avarice’. In the Bible, there is an episode where Jesus rants at the money-changers in the

Temple [(Matthew 21:12)].”: A. DOCHERTY and F. VIORT, Better Banking. Understanding and Addressing the

Failures in Risk Management, Governance and Regulation, Chichester, Wiley, 2014, 242. 24 P. JORION, Why Stewardship of Finance?, Antwerpen, Intersentia, 2012, 5. 25 During the transition from industrial to financial capitalism the meaning and purpose of a financial system

was forgotten, bringing along “opacity and asymmetric information combined with short-term performance

related pay” in the financial sector and a “major growth in the scale of financial activities relative to the real

economy” together with “an explosion of the complexity of financial services, in particular linked to the

development of securitised credit and of credit and other derivatives”. More importantly however, the transition

encouraged the development of a flawed belief among intellectuals and bankers that “growth in scale and

complexity was adding economic value, making the global economy both more efficient and less risky”: A.

TURNER et al., The Future of Finance: The LSE Report, 14. 26 “The true history of the law of a people – of the law really enforced and not merely that formulated in the

codes, which is often a dead letter – cannot be other that one with the social and political history of that

people, which means that all juridical history is economic, a history of wants and of labor.”: R. POUND, “The

Scope and Purpose of Sociological Jurisprudence [Continued]”, Harv.L.Rev. 1911, 166. An examination of the

history of our system is moreover important as law “is the most historically oriented –more bluntly the most

backward-looking, the most ‘past-dependent’- of the professions. It venerates tradition, precedent, pedigree,

4.

political policy which in turn was reflected in legislation and business practice28 (the

‘social sources of law’29). Via this analysis of the complex interaction that exists between

law and economic relations30 since the French Revolution, it shall be pointed out that

laws and market regulations are “not best perceived as natural, pre-legal, or non-political

as they are today but [preferably] should be recognized as tools which are utilized for the

furtherance of ‘social good’31, however defined”32, by the government. Likewise the

phenomenon of regulatory capture is relevant to this same exemplification because it

demonstrates how the fusion of interests and ideologies is powerful enough to change

the original nature of vital institutions like banks; how certain interest groups can

influence the content of laws using clever economic theories as justifications.

Another reason for the explicated examination of the first part, which inevitably comes

down to a description of the intrinsic fabric of our times through the metalegal research

approach of ‘legal anthropology’33, is the positioning of the thesis in the ‘Stewardship of

Finance Chair’34 of the VUB that was launched in September 2012. The jurist is videlicet

more than a reader and analyzer of statutes and court decisions, he needs to understand

society and its system and be critical about it. VON JHERING agreed. Since he held that life

was governed by purpose, any science of collective life ought to primarily employ a

ritual, custom, ancient practices, ancient texts, archaic terminology, maturity, wisdom, seniority, gerontocracy,

and interpretation conceived of as a method of recovering history.”: R.A. POSNER, Frontiers of Legal Theory,

London, Harvard University Press, 2001, 145. 27 The accentuated ideas by Lord Adair TURNER that influenced the intellectual men and women who were (and

are) employed in the policymaking functions of central banks, regulatory bodies and governments and in the

risk management departments of banks are going to be reviewed in this thesis: A. TURNER et al., The Future of

Finance: The LSE Report, 15. 28 Adair TURNER. 2010. “Economics, conventional wisdom and public policy” speech, King’s College, Cambridge,

8 October 2010. 29 The social sources of law are a subcategory of the material sources of law (infra). 30 A. HUNT, “Marxist theory of law” in D. PATTERSON (ed.), A Companion to Philosophy of Law and Legal Theory,

Oxford, Blackwell Publishers, 1999, 363. 31 For the past 200 years, as shall be illustrated in the thesis, economic theories that influenced the contents of

the law benefitted the social good of the few economically strongest as ‘social good’ was defined from the

standpoint of homo oeconomicus. This thesis pursues to redefine the social good in the benefit for society as a

whole using the ‘tools’ financial and company law. Basically I take as a premise that a society does not have to

suffer the consequences of profit maximizing decisions of banks, analyze the capacity of law to get us closer to

that ideal and continue with a proposal of a way to craft legal rules that are likely to move society in that

direction. The proposal imposes costs on banks that result in a decrease of shareholder return and restrict the

principle of party autonomy of the bank. 32 K. GREENFIELD, “From Metaphor to Reality in Corporate Law”, Stanford Agora 2000, 64. 33 “Legal anthropology is the study of legal systems using the method and theory of cultural anthropology. It is

centered in the analysis of law as a phenomenon inseparable from cultural context, the agent-actors, language,

history and traditions of the society in which it operates.”: R.R. FRENCH, “Law and anthropology” in D. PATTERSON

(ed.), A Companion to Philosophy of Law and Legal Theory, Oxford, Blackwell Publishers, 1999, 397. 34 The Stewardship of Finance Chair teaches to look broad and deep at problems from several aspects including

ethical, religious and moral persuasion, before any solution can be proposed. Even though that might seem

controversial, both the ULB and VUB universities do not shrink from investigating more closely, and in a

multidisciplinary context, the social roots, drivers and objectives of action related to economic developments.

See P. JORION, Why Stewardship of Finance?, Antwerpen, Intersentia, 2012, v.

5.

‘teleological method’35: “it is not enough for the jurist to know that law is a development;

he must perceive not only how it has developed but for what purpose and to what end.”36

Despite of one’s attitude towards the teleological method, societal structures still need to

be understood by legal professionals as people are and will remain system builders. An

assertion made by HEGEL, the same philosopher who warned of decadence in a civilisation

where private interests prevail over the common good37, pointed out in his ‘Philosophy of

Right’38.

5. In continuation, the second part shall proceed with the European and Belgian legal

framework in which banks operate and the implications of their legal nature in Belgium as

‘commercial companies’39, mostly limited by shares (‘NVs’40). A portrayal shall be

sketched of the current socially unfriendly or ignorant legal setup concerning banks and

of a legal opportunity that already exist to remedy this situation.

6. Eventually the third part will follow with the definition of ‘socially useful’.

Beforehand, evidence of political and social support will be given for the fact that the

public has lost its faith in banks and for the fact that banks should be different from any

other economic enterprise, requiring greater responsibilities and duties towards society,

because of their special relationship to society. Also, the functions and characteristics of

law will be looked in order to illustrate how it is the ideal instrument to coerce banks into

assuming a different role in our society.

In this final part the design research will in addition be taken a step further with a

suggestion of how to use law to convert the proposed definition of socially useful into an

35 The teleological method refers to interpreting a rule by taking into account the purpose, aim and objective it

pursues. This purposeful method, clearly declared in the CLIFIT case, is the favorite of the Court of Justice: O.

POLLICINO, “Legal Reasoning of the Court of Justice in the Context of the Principle of Equality Between Judicial

Activism and Self-restrain”, GLJ 2004, 289. 36 R. VON JHERING, Der Zweck im Recht, Volume 1, Leipzig, Breitkopf & Härtel, 1877, 5. The jurist “is not to draw

the conclusion that legal doctrines and legal institutions are to be left to work themselves out blindly in their

own way. They have not so worked themselves out in the past, but have been fashioned by human minds to

meet human ends”: R. POUND, “The Scope and Purpose of Sociological Jurisprudence [Continued]”, Harv.L.Rev.

1911, 140-141. 37 P. JORION, Why Stewardship of Finance?, Antwerpen, Intersentia, 2012, 4. 38 G.W.F. HEGEL, Philosophy of Right, New York, Dover Philosophical Classics, 2005, 96-101. 39 In this thesis the terms ‘company’ and ‘corporation’ are used simultaneously because American, British and

continental European doctrine have been consulted to convey the same points. In both cases, if not specified

otherwise, a company with legal personality is meant. The partners of a company limited by shares (in Belgium

the ‘naamloze vennootschap’ abbreviated as ‘NV’) are referred to as shareholders. Why banks are commercial

companies in Belgium will be explained in further detail in the main body of the thesis. 40 The terms ‘company limited by shares’ and ‘NV’ will be used simultaneously in this thesis.

6.

obligation for all banks and its potential implication for the contemporary Belgian legal

order41.

7. As a result my thesis consists out of answering the sub-question ‘is there social,

political and legal propensity for socially useful banks?’ and the subsequent main

questions ‘how can socially useful be defined and implemented in the context of

banking?’ and ‘how can this hypothetical implementation reconcile with the existing legal

order in Belgium in particular?’

8. For reasons of demarcation of such a broad topic I am not going to reflect on the

question whether the entire system of capitalism explicitly provides a framework that

encourages socially useless (banking) activities. This research is not a criticism of

capitalism42. A comparison between banks and administrative institutions shall equally

not be drawn just as the specific protection of the financial consumer, although a key

element to a good functioning financial system shall not exclusively be addressed given

my interest in society as a whole. Neither does this research attempt to explore the

failures of prudential financial supervision mechanisms nor to provide a general juridical

theory for financial instruments nor to argue that all companies should be socially useful.

Rather, the importance of banking legal rules “in signaling what is a right conduct or

practice in a [broad societal] context”43 shall be relevant.

9. Stressing European together with Belgian legislation is pertinent as the European

Commission is instigating initiatives to make all companies of the Member States more

responsible for their impact on society at large through the concept of corporate social

responsibility44. European legislation is also significant since all the current alterations in

national banking and financial laws are the outcome of European proposals (national law

does not rule on its own anymore). For a couple of years now the European Commission

is vigorously pursuing a number of projects to build new rules for the global financial

system; to establish a safe, responsible and growth enhancing financial sector in Europe;

41 For reasons of clarification I would like to stress that a thesis is an intellectual proposition, its goal is to put

something forth. This thesis puts forth an idea of how to implement a definition of ‘socially useful’. It is by no

means a policy suggestion or an optimum solution to problems in the banking sector. 42 Solutions need to be at least more or less pragmatic. Rhetoric debates on the ‘good’ or ‘bad’ nature of

capitalism are outdated as ways need to be found of how capitalism can work for the whole of society. In this

thesis the stand is taken that the financial sector actually helps the process of economic growth and

development. 43 P.F. HANRAHAN, “Regulation, Ethics and collective investment” in I. MACNEIL en J. O'BRIEN (eds.), The future of

financial regulation, Oxford, Hart Publishing, 2010, 334. 44 COM(11)681 final [Commission document nr. 681 of 2011, final version].

7.

and to create a banking union to strengthen the euro45. In addition, the European Union

is very keen to work with definitions, which suits one major aspect of this thesis

perfectly46.

10. An explanatory note is probably also indispensable for the reason of writing this

thesis in English. Presently London may be seen as the equivalent of Europe’s Wall

Street. Most doctrine and proposals stem therefore from the U.K., making the language

of the City a reality that is hard to ignore. This thesis is also based on several

interviews47 conducted with politicians and Lord Adair TURNER, which could not be done in

Dutch. These interviews are an absolute necessity as stated commitments from political

and financial leaders create the opportunity for reform that should be grasped with two

hands48.

11. Speaking in all frankness there is no denial of the ambitious nature of such an

attempt. However the reform of banking is a standing challenge to all persons: “if the

forces of disintegration now in operation for a number of years continue unchecked in

their ravages, then society will fall back to an economic status comparable only to the

dark ages of a thousand years ago.”49 Anyone with knowledge of this pressing problem

should be the more encouraged and inspired to take a chance in raising banking to

‘new’50 levels of social service.

45 One of the many examples is a report, published on 25 February 2009 by a High-Level Group chaired by de

Larosière, at the request of the European Commission, which concluded that the supervisory framework of the

financial sector of the European Union needs to be strengthened to reduce the risk and severity of future

financial crises. 46 See in case of point art. 4(1) points (1-128) Banking Regulation and art. 3(1) points (1-59) Banking

Directive. 47 For this thesis Lord Adair TURNER (member of the U.K.’s Financial Policy Committee and last Chairman of the

abolished FSA in Britain), Nirj Deva (Member of the European Parliament for the European Conservatives and

Reformists Group concerned with sustainable development) and Sulayman Hamid Al Mazroui (Ambassador of

the UAE to Belgium and the Grand-Duchy of Luxembourg, Head of Mission to the European Union, who was

active in the banking industry of UAE before becoming an Ambassador) were interviewed (See Annexes I, II

and III respectively). 48 The essential element to create a financial system that works much better for the entire economy is political

will: A. ADMATI and M. HELLWIG, The Bankers’ New Clothes. What’s wrong with banking and What to Do about It,

Princeton, Princeton University Press, 2013, 227-229. 49 G.W. EDWARDS, The Evolution of Finance Capitalism, New York, Longmans, Green & Co., 1938, 337-338. 50 Banking activities were originally instigated in a religious context (Mesopotamian temples, ca. 2112-2004 BC)

granting loans to those in need as well as to stimulate the economy and providing a secure environment for

depositing money and other merchandise. Hence there is nothing ‘new’ about banks taking care of the social

community, making the adjective ‘old’ more appropriate for the statement: K. BYTTEBIER, Handboek Financieel

Recht, Antwerpen, Kluwer, 2001, 346-347.

8.

9.

PART I: THE LEGAL PRINCIPLES OF SECURITY CAPITALISM

1. The déjà-vu effect of security capitalism

12. At present most members of Western society live in a system that classifies as

‘security capitalism’51. This type of system is based on certain (economic) theories of

rationality and freedom52 dating from the French Revolution53 onwards, which have been

identified as the answers to the guilt question54 in the most recent financial and economic

tragedy.

To be precise, most of the regulatory reports and wide range of doctrine dedicated to the

crisis seems to agree that the blame lays on nobody in particular but on the entire

system for accepting the rationality of the homo oeconomicus as a truthful reflection of

human nature55 and for the blind belief in the laissez-faire approach to market

regulation56: “any competent forensic work has to put the libertarian theory of self-

regulating financial markets at the scene of the crime.”57 The ideas and ideologies

incorporated in our legal and political structures in other words58 are supposed to have

determined the role of most banks as institutions exclusively interested in the making of

profit at all cost and caused the legislator and the regulator not to prohibit the latter

development.

51 ‘Finance capitalism’ or ‘financial capitalism’ are less accurate terms for ‘security capitalism’ often used by

politicians. Security capitalism can be contrasted with individual capitalism, its precursor (infra). 52 The libertarian rhetoric of the free market system: G.L. BALLON, K. GEENS, J. STUYCK and E. TERRYN, Inleiding

tot het economisch recht, Mechelen, Kluwer, 2010, 183; V. COLAERT, De Rechtsverhouding Financiële

Dienstverlener – Belegger, Brugge, die Keure, 2011, 52. 53 The origin of the dominant ideology of our time is deeply contested: A. PABST, “Liberalism” in L. BRUNI and S.

ZAMAGNI (eds.), Handbook on the Economics of Reciprocity and Social Enterprise, Cheltenham, Edward Elgar,

2013, 217. For practical reason the French Revolution is taken as a starting point since during that time most

principles we are familiar with today in the Belgian law were codified. 54 A question “asked by many including Queen Elizabeth II at the London School of Economics in November

2008”: A. DOCHERTY and F. VIORT, Better Banking. Understanding and Addressing the Failures in Risk

Management, Governance and Regulation, Chichester, Wiley, 2014, 14. 55 A.O. HIRSCHMAN, The Passions and the Interests. Political Arguments for Capitalism before its Triumph,

Oxfordshire, Princeton University Press, 2013, xiii. 56 Committee on Oversight and Government Reform, congressional hearing on the financial crisis and the role of

the federal regulators, 23 October 2008, nr. 110-209, www.gpo.gov/fdsys/pkg/CHRG-

110hhrg55764/html/CHRG-110hhrg55764.htm; A. TURNER et al., The Future of Finance: The LSE Report, 33;

M.M. BLAIR, “Financial Innovation, Leverage, Bubbles and the Distribution of Income”, Rev.Banking & Fin.L.

2010, 225-225; M. SANDEL, What Money Can’t Buy. The Moral Limits of Markets, London, Allen Lane, 2012, 5. 57 A. DOCHERTY and F. VIORT, Better Banking. Understanding and Addressing the Failures in Risk Management,

Governance and Regulation, Chichester, Wiley, 2014, 257. 58 J. ARMOUR, S. DEAKIN, V. MOLLICA and M. SIEMS, “Law and Financial Developments” in M. FAURE and J. SMITS

(eds.), Does Law Matter? On Law and Economic Growth, Cambridge, Intersentia, 2012, 46-47.

10.

13. During this exploration a peculiar trend was noticed; “the last 250 years seem to

have witnessed a cyclical evolution from Smith’s ‘progressive liberalism’ via the economic

liberalism of laissez-faire capitalism to the social liberalism of the welfare state and

(back) to the free-market economics associated with neo-liberalism.”59 Every phase of

this cycle is per se characterized by vague legal concepts (open norms), a lack of

regulation in favor of society as a whole and regulatory capture, just like today60.

EDWARDS already pointed to this cyclical feature in 1938, remarking that all “economic

systems pass successively through their rising, developed and declining stages.”61 He

commented on another persistent feature: “within the framework of the declining stage

of the old system appears the rising stage of the new system.”62 Indeed, our situation

today is very analogous to the fruitless period straight after the French Revolution when

the legislator also abstained from the clear-cut definitions of concepts (supposedly)

beneficial for society as a whole.

2. Precursor of security capitalism: last stage of

individual capitalism

2.1. THE FRENCH REVOLUTION

2.1.1. Liberté, égalité and fraternité (sociéte)

14. Not long after the publication of ‘An Inquiry into the Nature and Causes of the

Wealth of Nations’63, in 1776, the battle against the Ancien Regime unravelled. It started

with a noble goal. The principles of liberté, égalité and fraternité were destined to end

the continuous economic suffocation and ethical suppression by the three existing classes

59 A. PABST, “Liberalism” in L. BRUNI and S. ZAMAGNI (eds.), Handbook on the Economics of Reciprocity and

Social Enterprise, Cheltenham, Edward Elgar, 2013, 224. 60 Belgian politicians Meyrem Almaci (member of the ecological party Groen) and Georges Gilkinet (member of

the ecological party Ecolo) also wondered about the cyclicality of our system in their draft law about the

separation of banking activities and the enhancement of banking supervision when referring to the last financial

and economic crisis: Wetsvoorstel tot wijziging van de wet van 22 maart 1993 op het statuut van en het

toezicht op de kredietinstellingen, teneinde het financiële draagvlak van de banken te verstevigen en de

verschillende bankactiviteiten van elkaar te scheiden, Parl.St. Kamer 2011-12, nr. 53K1835/001, 22. Recently

these suspicions have been scientifically supported by PEREZ of Sussex University who also emphasizes the

cyclical patterns of the past. PEREZ has identified 5 cycles in the course of the previous 200 years with

significant similarities: C. PEREZ, “Finance and Technical Change: a Long-term View”, AJSTD 2011, 16-17. The

British historian FERGUSON commented too on the parallels to past booms with disastrous endings: R.G. RAJAN,

Fault Lines, Princeton, Princeton University Press, 2010, 1. 61 G.W. EDWARDS, The Evolution of Finance Capitalism, New York, Longmans, Green & Co., 1938, 9. 62 ibid. 63 A. SMITH, The Wealth of Nations, Blacksburg, Thrifty Books, 2009.

11.

(the nobility, the clergy and the guilds). “Together with the French Revolution [(1789-

1799)] new law arose intending to give more freedom to personal and concrete

initiatives. Inter alia, the freedom of trade and industry (décret d’Allarde, [1791]) and

the legal applications of the general principle of party autonomy have originated in this

context. These clarified that by law, each legal subject was free to decide upon its own

economic and legal status.”64

15. After the end of the French Revolution these revolutionary principles served as the

base for the codification of the French private law (and therefore also Belgian private

law) in 1804. Recent historic research furthermore indicates that solidarity, in addition to

the principles of freedom, equality and fraternity, substantiated the Code Civil65. The

preparatory works of the French Civil Code (and therefore also Belgian Civil Code) for

instance point at the fact that “la manière don’t [un individu] dispose de sa propriété

territoriale n’est pas indifférente à la société”66.

Moreover, “after 10 years of French Revolution, the Napoleon’s regime wanted to restore

social peace and stability. The Code Civil [was] one of the means to recomposer une

société (rebuild a society). It [was] driven by a clear will to stop the weakening of

individual ties. It [had] a revocation to stabilize and to strengthen the links between

individuals for the common good.”67

2.1.2. The misuse of the revolutionary principles

17. The reality turned out to be very different. In the chaos after the revolution

individual freedom appeared not to apply equally to everybody; it existed only for the

economically strongest who only grew stronger at the expense of their fragile

counterparties, whose labour they bought. Postulating freedom of contract and the

principle of party autonomy as the rules to prevent extortion failed in prohibiting the

businessman from being free to obtain all the profits which his skill in bargaining might

secure for him without giving adequate service at reasonable rates68. The original

principles were forgotten or even misused with monopolization, social exploitation and

64 L. CORNELIS, Algemene theorie van de verbintenis, II dln., Antwerpen, Intersentia, 2000, 18-23 (my own

translation). COLAERT also points out that the principle of party autonomy was a child of the French Revolution:

V. COLAERT, De Rechtsverhouding Financiële Dienstverlener – Belegger, Brugge, die Keure, 2011, 52. 65 V. COLAERT, De Rechtsverhouding Financiële Dienstverlener – Belegger, Brugge, die Keure, 2011, 28. 66 ibid. 67 B. CRETTEZ, B. DEFFAINS, G. LEYTE and L. PFISTER, “On the Law and Economics of the Origins of the French

Code Civil” in M. FAURE and J. SMITS (eds.), Does Law Matter? On Law and Economic Growth, Cambridge,

Intersentia, 2012, 259. 68 E. MERRICK DODD JR., “For Whom are Corporate Managers Trustees?”, Harv.L.Rev. 1932, 1148.

12.

economic crises as a consequence instead of the restoration of a society. A need for

improvements to the system and a new social balance appeared on the surface, and

grew, as more individuals started to understand that justice was not synonymous to

individual freedom and equality.69

18. Translating this awareness into a new political and legal order was complicated by

characters who did not want to lose their individual freedom and its subsequent power.

The elevating social upheaval and unrest however left them without a choice.

It is therefore not surprising that the most characteristic legal rules in the field of

individual freedom, freedom of trade and industry and the principle of party autonomy

were eventually limited by the legislator. Take for instance the ban on interest. After the

French Revolution this ban was brought to an end since contractual freedom prevailed

above anything else. Shortly after, due to usury, a ceiling on interests of loans had to be

introduced70.71

19. Précis, society needed to express her voice loud and clear enough for the legislator

to stabilize the situation. The result was a trade-off between absolute liberty and minimal

protection standards for the weaker party. However, as an alternative to providing ‘good’

law, law that safeguards for values, the legislator chose paternalism72. And not any kind

of paternalism, but paternalism based on a misconception of human rationality and

freedom which inevitably lead to legalisation contradicting its good intentions and

containing the perfect ingredients for another economic debacle.

2.2. THE EPOCH OF HOMO OECONOMICUS AND ORGANIZED ‘FREE’ COMPETITION

2.2.1. The rationality of the homo oeconomicus

20. What then was the inspirational source for the process of making protective law for

the economically less established individual? The post-revolution elites held pro-market

69 L. CORNELIS, Algemene theorie van de verbintenis, II dln., Antwerpen, Intersentia, 2000, 18-23. 70 D. HEIRBOUT, Privaatsgeschiedenis van de Romeinen tot heden, Gent, Academia Press, 2005, 344. 71 L. CORNELIS, Algemene theorie van de verbintenis, II dln., Antwerpen, Intersentia, 2000, 18-23. 72 Liberalism meant a liberalization from the Ancien Regime, “but it tended to disorganize society, resolving it in

the individual; so that afterwards to reorganize that society it had recourse theoretically to the system of an

omnipotent state, and practically accentuated the defense of the bourgeoisie as the ruling class, indentifying

the economic interests of such a class with those of the nation as a whole”: A. PABST, “Liberalism” in L. BRUNI

and S. ZAMAGNI (eds.), Handbook on the Economics of Reciprocity and Social Enterprise, Cheltenham, Edward

Elgar, 2013, 225.

13.

views and it was those elites who influenced the re-organization of the legal system73. In

function of the Zeitgeist, the interpretation and application of the civil law therefore

shifted again from fraternity and solidarity to freedom74 even though protective measures

for the weaker party were sought.

Justifiably the legislator was (mis)guided by a core definition in economic theory of the

time. This definition, formally offered to the world in 1844 by John Stuart MILL (1806-

1873), was that of the ‘homo oeconomicus’75 or “the self-centred ‘rational’ human

being”76. The idea of this type of rationality was the ultimate materialization of the

“infatuation with interest as a key to the understanding of human action”77 that

originated with LA ROUCHEFOUCAULD and HOBBES, carried over into the eighteenth century

by HELVÉTIUS78. By doing so, MILL transformed the meaning of ‘rational’ into something

very alien to its meaning in normal circumstances. In this case, it denotes a

“maximiz[ation] of [one’s] well-being given the constraints [one] faces”79 or rather an

“anticipation of the consequences of all [one’s] possible actions and a choice of the one

that produces the most preferred [outcomes]”80.

But it would be the ‘Marginalist Revolution’81 of the 1870s, with JEVONS (1835-1882) in

the U.K., MENGER (1840-1921) in Austria, and WALRAS (1834-1810) in France and

Switzerland that would put the homo oeconomicus at the forefront by shifting from a

view of the economy as the interaction between ‘classes’ in the perspective of a ‘political

73 B. CRETTEZ, B. DEFFAINS, G. LEYTE and L. PFISTER, “On the Law and Economics of the Origins of the French

Code Civil” in M. FAURE and J. SMITS (eds.), Does Law Matter? On Law and Economic Growth, Cambridge,

Intersentia, 2012, 253. 74 V. COLAERT, De Rechtsverhouding Financiële Dienstverlener – Belegger, Brugge, die Keure, 2011, 53. 75 More general, the homo oeconomicus is a premise of neo-classical economics that influenced (and is

influencing) law at the time. Neo-classical economics is described by the Penguin Dictionary of Economics as “a

school of economic thought imbued with behavior at the level of individual consumers, groups of consumers or

firms. Neo-classical models are based round maximizing behavior of individual firms and consumers, with

decision at the margin often most important.”: G. BANNOCK, R.E. BAXTER and E. DAVIS, The Penguin Dictionary of

Economics, London, Penguin Books, 2003, 275. 76 P. JORION, Why Stewardship of Finance?, Antwerpen, Intersentia, 2012, 4. 77 A.O. HIRSCHMAN, The Passions and the Interests. Political Arguments for Capitalism before its Triumph,

Oxfordshire, Princeton University Press, 2013, 43. 78 A.O. HIRSCHMAN, The Passions and the Interests. Political Arguments for Capitalism before its Triumph,

Oxfordshire, Princeton University Press, 2013, 42-43. 79 C. RODRIQUEZ-STICKERT, “Homo Oeconomicus” in J. PEIL and I. VAN STAVEREN (eds.), Handbook of Economics

and Ethics, Cheltenham, Edward Elgar, 2009, 223-229. 80 C. RODRIQUEZ-STICKERT, “Homo Oeconomicus” in J. PEIL and I. VAN STAVEREN (eds.), Handboook of Economics

and Ethics, Cheltenham, Edward Elgar, 2009, 223. 81 The Marginalist Revolution refers to the emerging idea in economic theory at the end of the 19th century

postulating that it “is the average level of utility, costs or revenues that tend to determine whether things are

consumed or produced at all”: G. BANNOCK, R.E. BAXTER and E. DAVIS, The Penguin Dictionary of Economics,

London, Penguin Books, 2003, 239.

14.

economy’82, as it was then called, to the economy seen as the interaction of ‘economic

agents’ ‘maximizing their individual utility’.

Resultantly, the rational actor comprises “a being who desires to possess wealth, and

who is capable of judging the comparative efficacy of means for obtaining that end”83. A

solid judgement is considered possible in this case as markets are complete and perfectly

competitive leading to a frictionless operation of the price mechanism that yields a

‘Pareto-efficient equilibrium’84.85 Based on this logic the Belgian legislator returned to the

principle of absolute freedom in the determination of interest on a loan in 186586. More

importantly, in 1867 a thorough deregulation was implemented of the stock exchange in

Belgium; the trade of securities enjoyed almost absolute freedom87 and the ban on

speculation was lifted that same year88.

21. Without further ado about the unrealistic analysis of markets89, the exaggerated

fascination with the consideration that morality is ruled by interests, the evidence from

the ‘liberal paradox’ (also called the ‘Paretian liberal’) of the impossibility of coexistence

of economic efficiency and individual freedom90, the unfeasibility to equate economic

growth to economic development91 and the highly reductionist approach to human

behaviour utilized in the view of this ‘selfish-school’,92 FORSYTHE et al. have shown its

82 Political economy, is an early title for the subject of economics, “the study of the production, distribution and

consumption of wealth within society (...), [emphasizing] the importance of choice between alternatives in

economics which remains, despite continuing scientific progress, as much an art as science.”: G. BANNOCK, R.E.

BAXTER and E. DAVIS, The Penguin Dictionary of Economics, London, Penguin Books, 2003, 114. 83 J.S. MILL, Essays on Some Unsettled Questions of Political Economy, Kitchener, Batoche Books, 2000, 97. 84 The Pareto-efficient equilibrium also known as the ‘Pareto-optimal’ or simply ‘economic’ efficiency’ is the “the

state of an economy in which no one can be made better off without someone made worse off.”: G. BANNOCK,

R.E. BAXTER and E. DAVIS, The Penguin Dictionary of Economics, London, Penguin Books, 2003, 111. 85 D. AWREY, W. BLAIR and D. KERSHAW, “Between Law and Markets”, LSE Law, Society and Economy Working

Papers 2012, 5; K. ARROW and G. DEBREU, “Existence of an Equilibrium for a Competitive Economy”,

Econometrica 1954, 266-290; F.A. HAYEK, Individualism and Economic Order, Chicago, Chicago University

Press, 1948. 86 D. HEIRBOUT, Privaatsgeschiedenis van de Romeinen tot heden, Gent, Academia Press, 2005, 344. 87 V. COLAERT, De Rechtsverhouding Financiële Dienstverlener – Belegger, Brugge, die Keure, 2011, 75-76. 88 P. JORION, Why Stewardship of Finance?, Antwerpen, Intersentia, 2012, 7. 89 If anything, the financial crisis has illustrated that information about markets is far from perfect and

complete. COVAL, JUREK and STAFFORD noted for instance how market participants, including ratings agencies,

did not understand how the structures of CDOs and CDO²s intensified initial errors when calculating default risk

on underlying assets: J. COVAL, J. JUREK and E. STAFFORD, “The Economics of Structured Finance”, J. of

Econ.Persp. 2009, 3-25. 90 A. SEN, “The Informational Basis of Social Choice” in K.J. ARROW, A. SEN and K. SUZUMURA, Handbook of Social

Choice and Welfare, II, Oxford, North-Holland, 41-43. 91 UNITED NATIONS DEVELOPMENT PROGRAMME, Human Development Report 1990, New York, Oxford University

Press, 1990, 1. It was mostly due to SEN and his old friend MAHBUB-UL-HAQ with whom he teamed while working

in Harvard University, that economic development was allowed to be measured on a range of measures as

opposed to only GNP, a classic economic indicator. 92 Lord Adair TURNER pointed out that the work of KAHNEMAN (a behavioural economist) “has questioned the very

assumption of rational choice, of a homo economicus driven solely by the parts of his brain devoted to rational

information processing”: Adair TURNER. 2010. “Economics, conventional wisdom and public policy” speech,

King’s College, Cambridge, 8 April 2010.

15.

faults by providing evidence of altruistic human behaviour93. Yet the main flaw in the

definition lies in her axiom of rationality, since human beings behave irrationally more

often than not94.

2.2.2. The ‘free’ market

22. As for the concept of freedom, the legislator seemed to have forgotten the

unfavourable chaotic situation after the French Revolution and relapsed into habits of the

past by following the Weltanschauung of FRIEDMAN (1912-2006), HAYEK (1899-1992) and

VON MISES (1881-1973). This libertarian or laissez-faire vision, also known as the

“Greenspan-complex”95 assumes “that interference in the course of action of free

[rational] individuals will cause more harm than good and that the epitome of

interference is the intervention of the State”96 because spontaneous ordering is the

optimal way to allocate society’s resources.

23. In accordance, the human race can develop habits unaware and deliberate;

unaware developments being good and anything created intentionally being bad. Since

morals and laws are premeditated they are not considered beneficial unless they enable

the maximization of an environment for unhindered free behaviour. However, “even the

so-called laissez-faire marketplace is shot through with government (...) it was law that

created property and contract rights, and imposed various limits on those rights. The so-

called ‘free market’ was a creation of the law, not of nature”97 or some other natural or

unchosen baseline.

24. The competitive environment is an excellent contemporary example of this98.

“Competition allows each one of us to act in the exact way that he or she deems fit [–

which leads to disaster as described before]. However a free competitive environment

93 C. RODRIGUEZ-STICKERT, “Homo Oeconomicus” in J. PEIL and I. VAN STAVEREN (eds,), Handboook of Economics

and Ethics, Cheltenham, Edward Elgar, 2009, 225. A counterargument is provided by BECKER. He believes the

homo oeconomicus is not necessary self-interested. Some are altruistic egoists deriving satisfaction from the

maximization of the satisfaction of others: E. CAILLE, “Anti-utilitarianism and the gift-paradigm” in L. BRUNI and

S. ZAMAGNI (eds.), Handbook on the Economics of Reciprocity and Social Enterprise, Cheltenham, Edward Elgar,

2013, 45-46. 94 Current Belgian Minister of Finance, Koen Geens, although not refuting rational behavior on an individual

basis, does admit that collectively individuals tend to act irrationally: Koen, GEENS. 2013. “Twintig jaar na

datum: een nieuwe Bankwet voor een solide banksector” speech, NBB Financieel Forum, Brussel, 20 January

2013. 95 Wetsvoorstel tot wijziging van de wet van 22 maart 1993 op het statuut van en het toezicht op de

kredietinstellingen, teneinde het financiлle draagvlak van de banken te verstevigen en de verschillende

bankactiviteiten van elkaar te scheiden, Parl.St. Kamer 2011-12, nr. 53K1835/001, 13. 96 P. JORION, Why Stewardship of Finance?, Antwerpen, Intersentia, 2012, 13-14. 97 K. GREENFIELD, “From Metaphor to Reality in Corporate Law”, Stanford Agora 2000, 63. 98 P. JORION, Why Stewardship of Finance?, Antwerpen, Intersentia, 2012, 13-14.

16.

requires maintenance, [which is one of the key tasks of the European Commission99]. In

the absence of upkeep its benefits will not be obtained. Therefore a coercive legal

framework is necessary to ensure the exercise of free competition.”100 This is a manifest

contradictio in terminis: the competition described here is not free but forced.101

The same is true of contract and property rights which are no more private, natural, pre-

legal or neutral than statutory law. For these reasons it cannot be seriously claimed that

social utility will be maximized (of banks, amongst many other institutions and

phenomena present in society) as long as law poses no restrictions102. “Even if one

assumes that a maximization of utility should be the end goal, it is routine to note that

government intervention is often necessary to repair market ‘defects’ and thereby to

maximize utility”103.

25. Hence the arisen paternalism brought society right back to where it all started. “The

rationality of the homo oeconomicus turned out not to be exercised for the common

good, but only as a means towards the fulfilment of his own self-interest”104 (profit

maximization), on a market, now organized to be ‘free’ for random manipulation by the

strongest, mostly represented by entrepreneurs and bankers. This market has of course

no interest in external costs to the environment and society as recently witnessed (“for

instance the credit crisis has shown that faith in the laissez-faire has ultimately had high

external costs, as bankers have been able to pass on their losses to society”105).

Law was used as a way to promote economic efficiency and growth106. By no means did

this ‘formalistic approach to law’107 encourage ethical and society-friendly rules or

balance the competing interests within society for the greatest benefit. On the contrary,

the promotion of homo oeconomicus sidelined the issue of ethics and morality as

99 Art. 108 TFEU. 100 P. JORION, Why Stewardship of Finance?, Antwerpen, Intersentia, 2012, 13-14. 101 ibid. 102 K. GREENFIELD, “From Metaphor to Reality in Corporate Law”, Stanford Agora 2000, 66. 103 ibid. 104 P. JORION, Why Stewardship of Finance?, Antwerpen, Intersentia, 2012, 13. 105 L. TIMMERMAN, J.M. DE JONGH and A.J.P. SCHILD, “The Rise of the Social Enterprise: How Social Enterprises Are

Changing Company Law Worldwide” in S. MULLER, S. ZOURIDIS, M. FRISHMAN and L. KISTEMAKER (eds.), The Law

of the Future and the Future of the Law, Oslo, Torkel Opsahl Academic EPublisher, 2011, 307. 106 D. HEIRBOUT, Privaatsgeschiedenis van de Romeinen tot heden, Gent, Academia Press, 2005, 162. 107 Once entrepreneurs obtained the law that served their interests they opposed further reform of the law in a

more social direction. “Legal formalism strongly opposes social renewal: the universal and immutable law needs

to leave individuals free in determining their own fate, wherefore the most productive can reap the largest

profits.”: D. HEIRBOUT, Privaatsgeschiedenis van de Romeinen tot heden, Gent, Academia Press, 2005, 162 (my

own translation).

17.

extraneous as possible to finance and the economy as a whole108. Competition between

the socially irresponsible ruled.

3. The rise of security capitalism

26. Parallel to the incorporation of the dogma behind homo oeconomicus and the free

market theory into legislation, another novelty took place. Private property received

protection for the first time in centuries. The result was an accumulation of capital and

the rise of the middle class “which in time wrested the political power from the hands of

the agrarian aristocracy and later from the [monarchy]”109. In this last stage of individual

capitalism110, private merchant bankers arrived on the scene together with the crude

beginnings of central banks which bolstered government treasuries111 - these first central

banks had not yet become the institutions that regulated the credit of nations at this

stage112. To put it briefly, the system of security capitalism began to appear in the

developed stage of individual capitalism, ca. 1850, in Europe, due to an increase in the

volume of national government bonds and due to the development of a market for

dealing in these securities113.

27. By now, commercial banks also made an appearance on the stage and were by and

large the main sources of credit provision. According to the prevailing thoughts of the

time, classical or orthodox theory was applied by the legislator to the functioning of these

types of bank. The orthodox theory held that banks were only ought to grant loans which

were liquid in the sense of supplying their own means of self-extinguishment at

maturity.114 For that reason, commercial banks in Europe overall, were in full control of

their credit. Because of this control, the commercial banker manipulated the political and

social life to his own interests.

28. In the U.K. for instance - the nation where the Glorious Revolution took place that

inspired the French Revolution - “a large number of parliamentary seats were bought up

by the country bankers or ‘rag merchants’”115: a “parliamentary seat was a distinct asset

108 P. JORION, Why Stewardship of Finance?, Antwerpen, Intersentia, 2012, 4. 109 G.W. EDWARDS, The Evolution of Finance Capitalism, New York, Longmans, Green & Co., 1938, 9. 110 According to EDWARDS, the evolution of individual capitalism in Western Europe covered the period from the

end of seventeenth century to the close of the Napoleonic wars. 111 Like the nobility used to bolster their King’s undertakings in times of need. 112 G.W. EDWARDS, The Evolution of Finance Capitalism, New York, Longmans, Green & Co., 1938, 9-10. 113 G.W. EDWARDS, The Evolution of Finance Capitalism, New York, Longmans, Green & Co., 1938, 11. 114 G.W. EDWARDS, The Evolution of Finance Capitalism, New York, Longmans, Green & Co., 1938, 16. 115 G.W. EDWARDS, The Evolution of Finance Capitalism, New York, Longmans, Green & Co., 1938, 15-16.

18.

to a banker, for he was thereby in direct touch with the political and economic currents of

the day. The commercial banker also held a high social position. Usually the banker

classes constituted the local aristocracy”116. France was no different. “The course of

security capitalism in France as in no country was dominated by the political trend”117 of

national development being controlled in the interest of a small number of persons. The

general public was assured that “wealth and production are good, and the law should do

for them the best it can, namely, let them alone”118

29. Concluding, the bloodshed in the fights for equality across Europe resulted only in a

slight variation of the existing scenario; the type of ruling aristocracy changed

character119. Whereas before, the world was ruled by a landed aristocracy, now the world

was (and is) ruled by “an aristocracy of money on the exact same patterns of

feudalism”120. The “financiers simply replaced the Lords”121 due to their money power.

4. Contemporary regulatory capture

30. Who exercises the power today; how is its exercise legitimated; to whose benefit is

it exercised; and to whom are the power wielders held accountable122? These are the

main question leading to another déjà-vu.

4.1. THE BASEL COMMITTEE

31. The ‘Basel’123 Committee on Banking Supervision (BCBS) is a committee that

gathers every three months at the Bank for International Settlements in Basel,

116 ibid. 117 G.W. EDWARDS, The Evolution of Finance Capitalism, New York, Longmans, Green & Co., 1938, 49. 118 G.W. EDWARDS, The Evolution of Finance Capitalism, New York, Longmans, Green & Co., 1938, 194. 119 This was accomplished due to legislation based on parliamentary support of the laissez-faire policy (little

governmental control and regulation) in relationship to security capitalism. The policy was in turn chosen

because of bankers’ influence on parliament or even more directly due to the fact that bankers held

parliamentary positions. The return of individualism and economic self-interest as the driving forces of national

development society was complete (In the U.K. the prevailing classical philosophy of individualism and of

laissez-faire in the 19th century was so strong that “a member of Parliament in commenting on a bill to charter

a fraudulent foreign mining company, said that Parliament ‘had no right to take upon itself to prevent the

citizens of London or the people of England, from disposing of their money in any way they might please”: G.W.

EDWARDS, The Evolution of Finance Capitalism, New York, Longmans, Green & Co., 1938, 25). “Security

capitalism was extensively employed as a mechanism to finance the aims of the individuals and the groups

[(the banker)] which controlled the national government.”: G.W. EDWARDS, The Evolution of Finance Capitalism,

New York, Longmans, Green & Co., 1938, 49. Contemporary academics preach the same sermon. PISTOR

emphasizes how “power is exercised throughout the financial system. It is exercised by those who have the

resources to extend support to others without being legally obliged to do so. Those who have access to

unlimited resources have the most power”: K. PISTOR, “A Legal Theory of Finance”, J.Comp.Econ. 2013, 29. 120 P. JORION, Why Stewardship of Finance?, Antwerpen, Intersentia, 2012, 14. 121 R.J. SHILLER, Finance and the Good Society, Princeton, Princeton University Press, 2012, 2. 122 K. PISTOR, “A Legal Theory of Finance”, J.Comp.Econ. 2013, 29.

19.

Switzerland, and consists out of representatives of Central Banks and Bank Supervisors

(“the authorities with formal responsibility for the prudential supervision of banking

business where these are not the central banks”124) from 27 jurisdictions.125

In general it can be described as “a transnational regulatory network”126 or preferably “a

forum for regular cooperation between its member countries on banking supervisory

matters [with the aim] to enhance financial stability by improving supervisory knowhow,

the quality of banking supervision worldwide”127 and “to engage with the challenges

presented by diversified financial conglomerates”128 by seeking “a common approach

amongst its members towards measuring capital adequacy, the prescription of minimum

capital standards”129 and the minimum supervisory standards130.

The charter of the Committee confirms this description in its article on mandate: “the

BCBS is the primary global standard-setter for the prudential regulation of banks and

provides a forum for cooperation on banking supervisory matters. Its mandate is to

strengthen the regulation, supervision and practices of banks worldwide with the purpose

of enhancing financial stability.”131

4.1.1. The implicit binding force of the Basel Committee’s decisions

32. Article 3 of the charter concerning legal status clarifies that the committee does not

enjoy any formal supranational authority and that its decisions therefore do not possess

any legal force. Instead, the Committee is reliant on the commitments of the members

123 In this thesis the German spelling ‘Basel’ is used instead of the French spelling ‘Basle’. Furthermore the

Basel Committee on Banking Supervision will be referred to as the ‘Basel Committee’ or the ‘Committee’ from

now on. 124 BASEL COMMITTEE ON BANKING SUPERVISION, A brief history of the Basel Committee, Basel, Bank for

International Settlements, 2013, 1. 125 The committee was created at the end of 1974 in response to the closing of the Franklin National Bank of

New York due to large foreign exchange losses and the casualties of the breakdown of the Bretton Woods

system of managed exchange rates, like the withdrawal of Bankhouse Herstatt’s banking license by West

Germany’s Federal Banking Supervisory office after discovering that the bank’s foreign exchange exposures

were three times the sum of its capital: BASEL COMMITTEE ON BANKING SUPERVISION, A brief history of the Basel

Committee, Basel, Bank for International Settlements, 2013, 1. 126 M. DE BELLIS, “Global Financial Standards and Regulatory Failure: Lessons for Reforms” in G. DELLA CANANEA

and A. SANDULLI (eds.), Global Standards for Public Authorities, Napoli, Editoriale Scientifica, 2012. 127 BASEL COMMITTEE ON BANKING SUPERVISION, A brief history of the Basel Committee, Basel, Bank for

International Settlements, 2013, 1. 128 ibid. 129 B. CASU, C. GIRARDONE and P. MOLYNEUX, Introduction to Banking, Essex, Pearson Education, 2006, 181. 130Other methods of achieving these goals are the exchange of information on national supervisory

arrangements and the close collaboration with other standard-setting bodies from industries such as securities

and insurance: BASEL COMMITTEE ON BANKING SUPERVISION, A brief history of the Basel Committee, Basel, Bank for

International Settlements, 2013, 1. 131 Art. 1 Basel Committee on Banking Supervision (hereinafter: BCBS), charter, 13 January 2013,

www.bis.org/bcbs/charter.pdf.

20.

(the individual national authorities) to implement its guidelines, recommended

statements of best practice and supervisory standards in order to achieve a common

standard.

33. Although this might indicate that the national and European legislators make their

own decisions in the end since they can ignore the proposed principles and rules, this is

very far from the truth. “Compliance with global financial standards is, in principle,

voluntary: national authorities participating in the networks may choose to implement

global rules, or not, according to the standard setting bodies’ expertise and capacity of

persuasion. But things are not so simple. According to some commentators, international

organizations’ methods to improve implementation of global financial standards make

their adoption essentially mandatory.”132 Simultaneously there are scholars who remind

us “that transnational regulators’ soft law, such as codes of best practices and

international guidance, can have a ‘hard impact’.”133

34. In addition, more often than not the legislator does not possess full knowledge on

the subject he wants to regulate as a result of the fast-paced development of society and

its sectors leading to a subsequent increase in technicality and complexity of the subject

matter - a difficulty especially present in the area of banking of the past couple of

decades. In order to overcome this gap in knowledge the legislator frequently consults

the sector it wants to regulate. During the negotiation of this intended regulation the

legislator is frequently the weaker party as he does not possess the required specialized

insight and is therefore prone to be misguided into the composition of rules that are

actually in favor of the sector instead of the public (information asymmetry).134

One major problem with Basel II is for instance the “fact that bank regulators do not

have as much information (and particularly, risk-sensitive information) [to provide

relevant regulations to guard for society’s interests], as banks - hence facilitating a

process whereby banks are able to manipulate bank ratings”135.136

132 M. DE BELLIS, “Global Financial Standards and Regulatory Failure: Lessons for Reforms” in G. DELLA CANANEA

and A. SANDULLI (eds.), Global Standards for Public Authorities, Napoli, Editoriale Scientifica, 2012, 106. 133 ibid. 134 M. VAN DAMME, Elementen van legisprudentie. Bedenkingen bij het moderne wetgevingsbedrijf, Gent, Larcier,

204-207. 135 M. OJO, “BASEL III and Responding to the Recent Financial Crisis: Progress made by the Basel Committee in

Relation to the Need for Increased Bank Capital and Increased Quality of Loss Absorbing Capital”, 2010,

http://ssrn.com/abstract=1680886, 9. 136 The implication in this case that “regulation is not about the public interest at all, but is a process, by which

interest groups seek to promote their private interest”136 with the consequence that “over time, regulatory

21.

In case of point, when in July 1988, the Committee introduced its 1988 Capital Accord,

most of the world’s leading central banks undertook to implement it at the end of 1992.

Moreover, the European Union blindly implemented nearly all elements of the Capital

Accord, now better known as Basel I, into Member States’ law by the end of 1992.137

Standards therefore become obligatory through the incorporation in binding acts. Initially

this was plausible as “the Basel Accord of 1988 [(in all futility)] tried to stop [the] trend

towards deregulation. Under the guise of international harmonization of banking

regulation, the Accord stipulated minimum capital requirements for banks. For ordinary

credit risks the capital charge amounted to 8% of the loan. Banks were required to have

equity capital exceeding the sum of capital charges”138 and the risk assessment was

placed in the hands of regulators.

4.1.2. Regulatory capture of the Basel Committee

35. Due to a lot of criticism (mostly “from the banking industry”139), especially

regarding “the drawbacks as a comprehensive scheme of domestic capital regulation”140,

changes had to be made to the original Accord. “Economic developments in most

advanced economies in the 1990s were based on the political doctrine that markets were

sophisticated, rational, self-interested and self-correcting. This led to increasing

deregulation, not only of financial services but also in other industrial sectors such as

airlines, energy suppliers and telecommunications. [In accordance to this logic the new

Capital Accord was born, informally referred to as Basel II (the EU Capital Requirement

Directive is based on this new agreement141)]”142:

“A bank that is perceived as safe and well-managed in the marketplace is likely to obtain more favourable

terms and conditions in its relations with investors, creditors, depositors and other counterparties than a bank

that is perceived as more risky. Bank counterparties will require higher risk premiums, additional collateral and

other safety measures in transactions and contractual relations with a bank that presents more risk. These

agencies come to be dominated by the industries regulated”, is considered to be a narrow and therefore

inaccurate interpretation of regulation according to POSNER: R.A. POSNER, “Theories of Economic Regulation”,

Bell J.Econ. 1974, 341. 137 B. CASU, C. GIRARDONE and P. MOLYNEUX, Introduction to Banking, Essex, Pearson Education, 2006, 181; D.

BALLEGEER, “Basel III: The New Capital Regime for Banks”, BFR 2011, 150. 138 M. HELLWIG, Capital Regulation after the Crisis: Business as usual?, Bonn, Max Planck Institute on Collective

Goods, 2010, 5. 139 D. BALLEGEER, “Basel III: The New Capital Regime for Banks”, BFR 2011, 148. 140 D.K. TARULLO, Banking on Basel: The Future of International Financial Regulation, Washington, Peterson

Institute, 2010, 85. 141D. BALLEGEER, “Basel III: The New Capital Regime for Banks”, BFR 2011, 150. 142 A. DOCHERTY and F. VIORT, Better Banking. Understanding and Addressing the Failures in Risk Management,

Governance and Regulation, Chichester, Wiley, 2014, 256.

22.

market pressures will encourage a bank to allocate its funds efficiently and will help contain system-wide

risks.”143

36. This is an ideal example of how the banking industry used a certain ideology to

further its interests although ‘normally’ the unregulated free market (“deliberate policies

of financial (...) liberalization”144) would not be considered appropriate in the context of

banking as “bankers’ decisions have a considerable effect on other people145: “the new

Basel Capital Accord had too much input from banking sector participants and large

banks in particular (...) The fact that major banks have had a strong say in devising

regulations that govern their own operations is a possible indicator of regulatory

capture”146. Most probably this argument is based on valid grounds, bearing in mind that

“the ‘new capital rules’147 [not only] allow the ‘largest banks’148 to use their own ‘internal

[risk] models’149 for assessing risk and capital adequacy positions150 – which are likely to

lead to the biggest banks holding less capital for regulatory purposes”151 - but also have

proven to be too lax; the crisis showed banks to be in need for more and higher-quality

capital than Basel II offered152. Furthermore, the “IRB Approach was not included in the

first consultative proposal and was added later and further amended in the final version

of the accord, in accordance to the lobbying activity by the banks.”153

37. The global regulator’s capture154 by the banks lay in the standard setting process

used by the Committee to approve Basel II155. The procedure engrossed the publication

143 ibid (the underlineation in the quote is not contributable to the authors but was added for emphasis); BASEL

COMMITTEE ON BANKING SUPERVISION, A New Capital Adequacy Framework, Basel, Bank for International

Settlements, 1999, 17-18. 144 A. TURNER et al., The Future of Finance: The LSE Report, 14. 145 A. ADMATI and M. HELLWIG, The Bankers’ New Clothes. What’s wrong with banking and What to Do about It,

Princeton, Princeton University Press, 2013, 216. 146 B. CASU, C. GIRARDONE and P. MOLYNEUX, Introduction to Banking, Essex, Pearson Education, 2006, 166. 147 Inserted by “the 1996 Amendment to the Capital Accord to Incorporate Market Risks”: M. HELLWIG, Capital

Regulation after the Crisis: Business as usual?, Bonn, Max Planck Institute on Collective Goods, 2010, 5. 148 “Unsurprisingly, Basel II was strongly supported by the largest international banks, in the expectation that it

would allow them to reduce their capital levels”: P.H. VERDIER, “The Political Economy of International Financial

Regulation”, Ind.L.J. 2013, 1452. 149 Also known as the Internal Ratings-Based (IRB) approach which means that “banks themselves determine

the exposure based on their own estimates”: D. BALLEGEER, “Basel III: The New Capital Regime for Banks”, BFR

2011, 149. 150 Rather than the standardised approach where the “risk weightings are assigned to counterparties on the

basis of the corporate (or loan) ratings provided by credit rating agencies (such as Standard & Poor’s or

Moody’s Investors Service) in respect of such counterparties”: D. BALLEGEER, “Basel III: The New Capital Regime

for Banks”, BFR 2011, 149. 151 B. CASU, C. GIRARDONE and P. MOLYNEUX, Introduction to Banking, Essex, Pearson Education, 2006, 166. 152 M. DE BELLIS, “Global Financial Standards and Regulatory Failure: Lessons for Reforms” in G. DELLA CANANEA

and A. SANDULLI (eds.), Global Standards for Public Authorities, Napoli, Editoriale Scientifica, 2012, 83. 153 M. DE BELLIS, “Global Financial Standards and Regulatory Failure: Lessons for Reforms” in G. DELLA CANANEA

and A. SANDULLI (eds.), Global Standards for Public Authorities, Napoli, Editoriale Scientifica, 2012, 82-83. 154 On a smaller scale the banking lobby affects the financial legislation of Member States too and has managed

to affect the Belgian Government. Although the Special Commission in charge with investigating the financial

and banking crisis (2009) identified securitisation (“Securitisation was a new financing technique that emerged

23.

of three consultative drafts. After every draft there was a period in which interested

parties could send their comments. Although there was no lack in participation as more

than two hundred comment letters were sent for each consultative document, the

involved stakeholders were by and large banks and financial institutions instead of

consumers [, general members of public] and academics.156 Also, the “notice and

comment procedure followed by the [Committee] was not codified in any document of

the network; on the contrary, participation was granted on a case by case basis. As a

result, this tool was mostly used by the strongest stakeholders to influence the

Committee.”157

38. The type of participation for Basel III (transposed into European Union law through

the new CRD IV package which consists out of the Banking Regulation and the Banking

Directive158) did not change much from the past either. There was a large involvement

from the banks and financial institutions whilst the scope of participation was again

decided by the Committee on a case by case basis.159 But that is not the only

perpetuation of pre-crisis patterns. Basel III does not replace the previous controversial

risk-weighting methodology that opens doors to ‘arbitrage’160 by financial institutions,

“but instead simply increases the percentage of capital to be held relative to the risk-

weighted assets calculated according to Basel II.”161 More evidence for JOHNSON and

in the 1970s [in the Anglo-American world] whereby loans [(all types of loans can be securitised like residential

and commercial mortgages, car loans, etc.)] were turned into bonds. A bank assigns a number of loans to a

portfolio or ‘pool’ and sells them to a subsidiary called a Special Purpose Vehicle. The Special Purpose Vehicle

then borrows money from investors by issuing bonds. The income from the loans is used to pay the interest

coupon on the bonds and also to amortise to repay them. If the loans turn sour, the investors take the hit from

the credit losses, not the bank. The bank is off the hook and the investors have assumed the risk: A. DOCHERTY

and F. VIORT, Better Banking. Understanding and Addressing the Failures in Risk Management, Governance and

Regulation, Chichester, Wiley, 2014, 77.) as one of the definite causes of the crisis (Hand. Bijzondere

Commissie belast met het onderzoek naar de financiële en bankcrisis, 2009-10, 27 april 2009, nr.

52K1643/002, 176.), the law of 3 August 2012 (Wet 3 augustus 2012 betreffende diverse maatregelen ter

vergemakkelijking van de mobilisering van schuldvorderingen in de financiële sector, BS 24 augustus 2012,

50.674.) creates a legal framework for covered bonds, an alternative for securitisation, and refers to

securitisation as the ultimate instrument to achieve the goal of the law; allowing financial institutions to fully

use their assets as guarantee in order to achieve self-financing as cheap and quickly as possible (Hand.

Commissie voor de financiën en de begroting, 2012-13, 17 juli 2012, nr. 53K2341/003, 3 and 12.): K.

BYTTEBIER and M. GESQUIERE, Insolventierecht. Algemene Beginselen, Gent, Story Publishers, 2014, 59. 155 M. DE BELLIS, “Global Financial Standards and Regulatory Failure: Lessons for Reforms” in G. DELLA CANANEA

and A. SANDULLI (eds.), Global Standards for Public Authorities, Napoli, Editoriale Scientifica, 2012, 82-83. 156 M. DE BELLIS, “Global Financial Standards and Regulatory Failure: Lessons for Reforms” in G. DELLA CANANEA

and A. SANDULLI (eds.), Global Standards for Public Authorities, Napoli, Editoriale Scientifica, 2012, 102. 157 M. DE BELLIS, “Global Financial Standards and Regulatory Failure: Lessons for Reforms” in G. DELLA CANANEA

and A. SANDULLI (eds.), Global Standards for Public Authorities, Napoli, Editoriale Scientifica, 2012, 83-84. 158 COM(13)690 final [Commission document nr. 690 of 2013, final version]; D. BALLEGEER, “Basel III: The New

Capital Regime for Banks”, BFR 2011, 159. 159 M. DE BELLIS, “Global Financial Standards and Regulatory Failure: Lessons for Reforms” in G. DELLA CANANEA

and A. SANDULLI (eds.), Global Standards for Public Authorities, Napoli, Editoriale Scientifica, 2012, 104. 160 Regulatory arbitrage is a socially useless activity according to Lord Adair Turner: Adair TURNER. 2013.

“Socially useful financial instruments and activities” interview, 12 February 2013 (Appendix I). 161 P.H. VERDIER, “The Political Economy of International Financial Regulation”, Ind.L.J. 2013, 1412; A. ADMATI

and M. HELLWIG, The Bankers’ New Clothes. What’s wrong with banking and What to Do about It, Princeton,

24.

KWAK’s thesis that “bankers remain firmly in control of the political-regulatory process

[(the process of regulatory and political capture)] and have successfully blocked any

needed post-crisis reform and regulation”162.

5. Making security capitalism work for the whole of

society

5.1. A DESCRIPTION OF SECURITY CAPITALISM

39. The ‘capitalistic system’163 is characterized by a fluctuating nature and can be

grouped considering its dominating class into an agrarian, mercantile, industrial or

banking capitalism. An even more important principle according to which capitalism can

be categorized is the nature of the transfer of capital. In this case the distinction can be

drawn between individual capitalism and security capitalism.

40. Security capitalism indicates a transfer of capital by securities or ‘stock and bond’

whereas under individual capitalism economic activities are provided with funds by the

entrepreneur as a single owner or in partnership with others. More specifically, security

capitalism fuses the forces of savings and investments (in relation to securities) by

converting the savings of investors into security investments.164

Whereas individual capitalism is a two-party system, with a personal nature and based

on capital mostly represented by tangible assets such as farms, factories or ships,

security capitalism requires a saving-investor, a saving-receiver and a saving-dealer or

an investment banker, is dependent on investor capital and emphasises intangible assets

(which pose difficulties when it comes down to accurate valuation) to hold up its capital.

The third party in security capitalism, embodied by the investment banker, is in effect

Princeton University Press, 2013, 183. Additionally “many have argued that the Basel III requirements are too

low”: A. ADMATI and M. HELLWIG, The Bankers’ New Clothes. What’s wrong with banking and What to Do about

It, Princeton, Princeton University Press, 2013, 181. 162 M.H. WOLFSON and G.A. EPSTEIN (eds.), The Handbook of the Political Economy of Financial Crises, New York,

Oxford University Press, 2013, 417. And how can it be differently? Article 4 of the Committee’s charter states

clearly that membership is only open to protagonists of the banking scene. This fact, together with a very

financially powerful banking lobby in possession of a knowledge advantage in an ‘artificially’ multifaceted

subject matter is a match made in heaven to create rules of more benefit to own interest rather than society:

M. HELLWIG, Capital Regulation after the Crisis: Business as usual?, Bonn, Max Planck Institute on Collective

Goods, 2010, 8; P.H. VERDIER, “The Political Economy of International Financial Regulation”, Ind.L.J. 2013,

1429. 163 Capitalism overall is a “social and economic system in which individuals are free to own the means of

production and maximize profits, and in which resource allocation is determined by the price system.”: G.

BANNOCK, R.E. BAXTER and E. DAVIS, The Penguin Dictionary of Economics, London, Penguin Books, 2003, 48. 164 G.W. EDWARDS, The Evolution of Finance Capitalism, New York, Longmans, Green & Co., 1938, 1-2.

25.

unnecessary. Yet his purchasing operations have become very important to the system,

granting him power with deep social and economic importance. It namely depends on the

decision of this ‘unessential’ actor who acquires capital necessary to finance

governmental and industrial needs.165

5.2. THE NEED TO SOLVE THE PROBLEMS INHERENT TO SECURITY CAPITALISM

41. Monopolization of the control of capital and the opportunity to abuse this control via

influence over political actors (“politicians receive donations from the financial sector, and

they benefit from the booms that can be won with relaxed regulation”166) simultaneously

to the alienation of the banker to the societal idea of collective good as the financial

relationship in public and private finance between the saving-investor and saving-

receiver has become very impersonal, are obvious problems in security capitalism. The

accelerated rate with which capital can be shifted in security capitalism and the

“uncertainty over the pecuniary valuation of the securities in relation to their underlying

assets”167 also contributes to instability in the system.168

With the increasing “‘financialisation’ of the economy today”169 these intricacies become

more and more pronounced. Bankers continue to regulate the industry through the Basel

Committee; free-market concepts, introduced by Adam Smith in times of individual

capitalism persist throughout our security capitalistic system with crises as a result.

42. These problems however do not comprise strong enough arguments to eradicate

security capitalism and its fundamental institutions like banks all together. Since “the

promulgation of Hammurabi’s Code in Ancient Babylon, no advanced society has survived

without banks and bankers”170; hence a way needs to be found “to limit finance’s ability

to do damage while harnessing its creative energies.”171

“It should be realized that security capitalism is an imperfect system which, at times, has

not functioned satisfactorily from the standpoint either of the individual or society.”172

However banking, an essential characteristic of today’s security capitalism, “has the

165 G.W. EDWARDS, The Evolution of Finance Capitalism, New York, Longmans, Green & Co., 1938, 1-8. 166 A. TURNER et al., The Future of Finance: The LSE Report, 249. 167 G.W. EDWARDS, The Evolution of Finance Capitalism, New York, Longmans, Green & Co., 1938, 7. 168 G.W. EDWARDS, The Evolution of Finance Capitalism, New York, Longmans, Green & Co., 1938, 1-8. 169 A. TURNER et al., The Future of Finance: The LSE Report, 14. 170 A. DOCHERTY and F. VIORT, Better Banking. Understanding and Addressing the Failures in Risk Management,

Governance and Regulation, Chichester, Wiley, 2014, 250. 171 R.G. RAJAN, Fault Lines, Princeton, Princeton University Press, 2010, 156. 172 G.W. EDWARDS, The Evolution of Finance Capitalism, New York, Longmans, Green & Co., 1938, ix.

26.

capacity to create wealth and happiness. By matching up the supply of capital (investors)

with the need for capital (borrowers), the need of both parties can be met at a mutually

beneficial price and wealth-creating opportunities [(a process better known as

intermediation173)], such as the building of a bridge across a valley to enable better

transport links, (...) [the investment of machinery by companies, the payment of

education by students, etc.] can be pursued.”174 The potential is there to “support the

greater goals of good societies – prosperous and free societies in the industrialized as

well as the developing world”175 – we just need to adjust certain aspects of banking so as

to better ally them better with society’s interests.

PART II: THE LEGAL FRAMEWORK OF BANKS

1. De lege lata

1.1. DEONTOLOGICAL RULES OF CONDUCT FOR BANKS IN BELGIUM

43. The management of the Belgian Bankers’ Association (since 2005 called ‘the

Belgian Bankers’ and Stockbroking Firms’ Association’ as it merged with the Belgian

Association of Stock Exchange Members) approved a code of Conduct for banks in April

1998, entitled the ‘Code of Conduct of the Belgian Association for Banks’, expressly

endorsed by all banks under Belgian law that same year. This code contains ‘rules of

conduct’176 which banks should follow in their relationship to private clients (natural

persons acting on their private interest). The seven main principles of the Code of

Conduct of the Belgian Association for Banks create real obligations for banks like the

overall obligation to treat clients respectfully (a minimum standard in itself for all banks,

173 JORION defines intermediation as “ensuring the meeting of one party needing funds with another having

access to funds which it is prepared to lend for a period of time as long as interest gets paid for the service

rendered’. Intermediation is also termed socially useful by JORION. Other examples of socially useful activities

of banks are the provision of an operating primary market for debt instruments and the upkeep for a secondary

market for them: P. JORION, Why Stewardship of Finance?, Antwerpen, Intersentia, 2012, 8-10. 174 A. DOCHERTY and F. VIORT, Better Banking. Understanding and Addressing the Failures in Risk Management,

Governance and Regulation, Chichester, Wiley, 2014, 250. Initiatives to abolish banks like KOTLIKOFF’s

suggestion for instance, by turning all banks into mutual funds, would therefore be too extreme as they do not

take the benefits banks provide into account: Adair TURNER. 2010. “Economics, conventional wisdom and public

policy” speech, King’s College, Cambridge, 8 April 2010. 175 R.J. SHILLER, Finance and the Good Society, Princeton, Princeton University Press, 2012, 3. 176 ‘Rules of conduct’ are not defined by the European or Belgian legislator. They originate from deontology and

can be understood as moral principles which clarify how the service provider should be willing to provide

services to the client and how the service provider has to be socially responsible. In a financial context ‘rules of

conduct’ can refer to either ‘rules of market conduct’ or ‘conduct of business rules’: V. COLAERT, De

Rechtsverhouding Financiële Dienstverlener – Belegger, Brugge, die Keure, 2011, 30-32. In this thesis ‘rules of

conduct’ refer to ‘conduct of business rules’ as in rules regulating the relationship between the financial

institution and its client.

27.

part of the current compliance regulations for banks177). In court a plaintiff can namely

invoke the principles as judges need to take professional customs into account.178

44. The sixth principle is of main relevance for this thesis. This principle deals with the

integrity of the banking system: “financial service providers [(like banks)] do not only

serve the individual interest however the interest all its actors in economic and social life;

they are obliged to serve the interests of the depositors, borrowers, shareholders and its

personnel”179. Oxymoronically the summed stakeholders are not all of the bank’s

economic and social actors. All members of society in which the bank operates are not

included.

1.1.1. Ineffectiveness of deontological codes of conduct

45. The trouble with deontological codes, codes of conduct and corporate governance

codes is that they are composed from within the industry they concern; one is almost

obliged to call them endogenous. Standards composed from within are more often than

not unidirectional in the interest of the regulated industry itself180. Moreover, they often

do not have a legal binding force and belong to the rather impractical category of soft

law181.

46. Despite the existence of numerous industry codes and institutional pronouncements

stating, in effect, that the customer “always comes first”182 the banking sector did not

behave diligently: irresponsible behavior of market participants (like banks) tout court

has been officially acknowledged to “undermine the foundations of the financial system,

leading to a lack of confidence among all parties, in particular consumers, and potentially

severe social and economic consequences.”183 The European Parliament and the Council

177 I. DE MEULENEERE, “Compliance in een nieuw regelgevend kleedje” in EVBFR – BELGIUM, 20 jaar Bankwet,

Antwerp, Intersentia, 2013, 145. 178 R. SMITS, S. STIJNS and K. VANDERSCHOT, “Algemene Bankvoorwaarden” in B. TILLEMAN and B. DU LAING (eds.),

Bankcontracten, Brugge, die Keure, 2003, 31. 179 Belgische Vereniging van Banken en Beursvennootschappen (hereinafter: BVB), gedragscode BVB, 11

november 2009, principe 6 (my own translation), http://economie.fgov.be/nl/binaries/gedragscodbvb_tcm325-

58954.pdf. 180 An attempt to show this was made in the chapter ‘Contemporary regulatory capture’ (supra). 181 K. BYTTEBIER, “Gedragsregelen bij financiële transacties: huidige praktijk en perspectieven” in M. TISON, C.

VAN ACKER and J. CERFONTAINE (eds.), Financiële regulering op zoek naar nieuwe evenwichten. Volume II.

Financiële markten, financiële transacties, prudentieel recht, Antwerpen, Intersentia, 2003, 29. 182 D. AWREY, W. BLAIR and D. KERSHAW, “Between Law and Markets”, LSE Law, Society and Economy Working

Papers 2012, 18. 183 Consideration 3 Directive of the European Parliament and of the Council nr. 2014/17/EU, 4 February 2014 on

credit agreements for consumers relating to residential immovable property and amending Directives

2008/48/EC and 2013/36/EU and Regulation (EU) No 1093/2010, Pb.L. 28 February 2014, episode 66 , 34

(hereinafter: ‘Mortgage Directive’).

28.

of the European Union also concede weaknesses in corporate governance to have

contributed to “excessive and imprudent risk-taking in the banking sector which has led

to the failure of individual institutions and systemic problems in Member States and

globally”184.

The trend of enrolling rules of conduct (which are supposed to control behavior) in law

affecting banks is therefore a welcome development at the point in time when ethics

need to be converted into present-day legal rules in order to create substantial legal

rights and obligations185. Indeed, legal rules are mandatory imposed by other persons,

unlike ethics and morals186.

1.2. RULES OF CONDUCT FOR BANKS IN THE MIFID

1.2.1. Article 19 MiFID

47. Just before the crisis, article 19(1) of Directive 2004/39/EC187, part of the overall

encompassing Financial Services Action Plan of the Commission188 (namely the first of

the three strategies of this plan focusing on the establishment of a single market in

wholesale financial services), required the Member States to compel their ‘investment

firms’189 and banks,190 when they provide one or more ‘investment services and/or

performing investment activities’191, to “act honestly, fairly and professionally in

184 Consideration 53 Banking Directive. 185 V. COLAERT, De Rechtsverhouding Financiële Dienstverlener – Belegger, Brugge, die Keure, 2011, 36; K.

BYTTEBIER, “Gedragsregelen bij financiële transacties: huidige praktijk en perspectieven” in M. TISON, C. VAN

ACKER and J. CERFONTAINE (eds.), Financiële regulering op zoek naar nieuwe evenwichten. Volume II. Financiële

markten, financiële transacties, prudentieel recht, Antwerpen, Intersentia, 2003, 4 and 8; K. BYTTEBIER, “Nieuwe

gedragsvoorschriften voor financiële bemiddelaars - Analyse van de bepalingen bedoeld in de artikelen 26 tot

en met 30 van de Wet van 2 augustus 2002 betreffende het toezicht of de financiлle sector en de financiële

diensten”, T.Fin.R. 2002, 272-273. 186 K. BYTTEBIER, “Gedragsregelen bij financiële transacties: huidige praktijk en perspectieven” in M. TISON, C.

VAN ACKER and J. CERFONTAINE (eds.), Financiële regulering op zoek naar nieuwe evenwichten. Volume II.

Financiële markten, financiële transacties, prudentieel recht, Antwerpen, Intersentia, 2003, 7. 187 Directive of the European Parliament and of the Council nr. 2004/39/EC, 21 April 2004 on markets in

financial instruments amending Council Directives 85/611/EEC and 93/6/EEC and Directive 2000/12/EC of the

European Parliament and of the Council and repealing Council Directive 93/22/EEC, Pb.L. 30 April 2004, episode

145 (hereinafter: ‘MiFID’). 188 COM(99)232 final [Commission document nr. 232 of 1999, final version]; A. CAUWENBERGE, “Het

reglementaire landschap voor de Europese financiële markten na MiFID”, BFR 2008, 63. 189 According to article 4(1) MiFID investment firms are legal persons whose regular occupation or business is

the provision of one or more investment services to third parties and/or the performance of one or more

investment activities on a professional basis. 190 Art. 1(2) MiFID. 191 Investment services and activities according to article 4(2) MiFID are understood as any service and activity

listed in section A of Annex I of MiFID (reception and transmissions of orders in relation to one or more financial

instruments, execution of orders on behalf of the clients, dealing on own account, portfolio management,

investment advice, underwriting of financial instruments and/or placing of financial instruments on a firm

commitment basis, placing of financial instruments without a firm commitment basis and operations of

29.

accordance with the best interest of its clients”192. In addition to this rule of conduct,

MiFID inter alia obliges for the imposition of a policy in case of an identified conflict of

interest between the bank and the client193 and the obligation to execute orders on terms

most favorable to the client (banks should take “all reasonable steps to obtain, when

executing orders, the best possible results for their clients taking into account price,

costs, speed, likelihood of execution and settlement, size, nature or any other

consideration relevant to the execution of the order”194).

These requirements of MiFID are further specified in the implementing Directive195 and

the implementing Regulation196 of the MiFID. In the Belgian legal order this has been

translated through alterations to the law of 2 August 2002197 (particularly its articles 26

and 27198), by the Royal Decree of 27 April 2007199, the Royal Decree of 3 June 2007200,

the Royal Decree of 12 November 2012201 and the law of 30 July 2013202.

48. Consonantly to the desires of the Belgian Minister of Finance, Koen Geens, to take

the national legislation a step further than what is required from the European level203,

the requirement for banks204 to “act honestly, fairly and professionally in accordance with

multilateral trading facilities) relating to any of the instruments listed in section C of Annex I of MiFID (inter alia

transferable securities, money-market instruments, options, futures, swaps, forwards rate agreements and any

other derivative contracts relating to securities, currencies, interest rates or yields, or other derivatives

instruments, financial indices or financial measures which may be settled physically or cash). 192 Art. 1(2) and art. 19(1) MiFID. 193 Art. 1(2) and art. 18 MiFID. 194 Art. 1(2) and art. 21(1) MiFID. 195 Directive of the Commission nr. 2006/73/EC, 10 August 2006 implementing Directive 2004/39/EC of the

European Parliament and of the Council as regards organisational requirements and operating conditions for

investment firms and defined terms for the purposes of that Directive, Pb.L. 2 September 2006, episode 241,

26. 196 Regulation of the Commission nr. 1287/2006, 10 August 2006 implementing Directive 2004/39/EC of the

European Parliament and of the Council as regards recordkeeping obligations for investment firms, transaction

reporting, market transparency, admission of financial instruments to trading, and defined terms for the

purposes of that Directive, Pb. L. 2 September 2006, episode 241, 1. 197 Wet 2 augustus 2002 betreffende het toezicht op de financiële sector en de financiële diensten, BS 4

september 2009, 39.121 (hereinafter: ‘Belgian law on financial supervision’). 198 K. BYTTEBIER, “Gedragsregelen bij financiële transacties: huidige praktijk en perspectieven” in M. TISON, C.

VAN ACKER and J. CERFONTAINE (eds.), Financiële regulering op zoek naar nieuwe evenwichten. Volume II.

Financiële markten, financiële transacties, prudentieel recht, Antwerpen, Intersentia, 2003, 45-61. 199 KB 27 april 2007 tot omzetting van de Europese richtlijn betreffende de markten voor financiële

instrumenten, BS 31 mei 2007, 29.283. 200 KB 3 juni 2007 tot bepaling van nadere regels tot omzetting van de richtlijn betreffende markten voor

financiële instrumenten, BS 18 juni 2007, 32.935. 201 KB 12 november 2012 met betrekking tot bepaalde openbare instellingen voor collectieve belegging, BS 30

november 2012, 76.604. 202 Wet 30 juli 2013 tot versterking van de bescherming van de afnemers van financiële producten en diensten

alsook van de bevoegdheden van de Autoriteit voor Financiële Diensten en Markten en houdende diverse

bepalingen (I), BS 30 juli 2013, 60.090. 203 Koen GEENS. 2013. “Twintig jaar na datum: een nieuwe Bankwet voor een solide banksector” speech, NBB

Financieel Forum, Brussel, 20 January 2013. 204 Art. 26 Belgian law on financial supervision.

30.

the best interest of its clients”205 not only applies when the bank provides investment

services and/or performs investment activities but also when a bank commercializes

savings accounts on the territory of Belgium according to article 27, paragraph 2bis of

the Belgian law on financial supervision206.

1.2.2. Infectiveness of article 19 MiFID

49. These rules of conduct fossilized in European and national law (prior to the minor

adjustments after the crisis that is) did not prevent the financial and economic meltdown.

It is also very questionable whether these rules actually give the client, the subject

whose interests are prioritized, the possibility to bring a claim against a bank which did

not act honestly, fairly and professionally in accordance with the best interest of its

clients, even though it is an obligation prescribed in a law text207. In Belgium there is

namely a general consensus that a breach of a written rule in a law text (containing a

command or prohibition208), even if the provision belongs to the supervisory standards

that concern the regulated status of the institution can be the source of a civil claim (for

everyone with damage as the Schutznorm theory does not apply in Belgium209)210.

The questionability arises as the obligation categorizes as an obligation to use best

endeavors instead of an obligation to produce results211. A violation of an obligation to

use best endeavors prescribed by a law text does not suffice to speak of a violation of a

written legal rule containing a command or prohibition, and for that reason not sufficient

enough to constitute as a fault, one of the constitutive elements of tort liability (at least

not in Belgium)212. Content wise the obligation simply comes down to an application of

205 Art. 27, § 1 Belgian law on financial supervision. 206 Art. 27, § 2bis Belgian law on financial supervision. The law also provides measures to stimulate the honest,

fair and professional treatment of savers: Art. 28ter, § 3 Belgian law on financial supervision. 207 L. CORNELIS, Beginselen van het Belgische buitencontractuele aansprakelijkheidsrecht, I, Antwerpen, Maklu,

1989, 267. 208 L. CORNELIS and J. PEETERS, “Gedragsregels van bemiddelaars bij transacties in financiële instrumenten,

getoetst aan het aansprakelijkheidsrecht” in E. WYMEERSCH (ed.), Financieel recht tussen oud en nieuw,

Antwerpen, Maklu, 1996, 676. 209 L. CORNELIS, Beginselen van het Belgische buitencontractuele aansprakelijkheidsrecht, I, Antwerpen, Maklu,

1989, 267. 210 L. Cornelis, Beginselen van het Belgische buitencontractuele aansprakelijkheidsrecht, I, Antwerpen, Maklu,

1989, 146-147; M. KRUITHOF, “Privaatrechtelijke remedies tegen inbreuken op reglementaire gedragsregels

inzake beleggingsdiensten: zorgplicht, know your customer en best execution” in H. DAEMS, I. DE MEULENEERE, R.

FELTKAMP and R. STEENNOT (eds.), Bescherming van de consument in het financieel recht, Limal, Anthemis, 2012,

157-158. 211 L. CORNELIS and J. PEETERS, “Gedragsregels van bemiddelaars bij transacties in financiële instrumenten,

getoetst aan het aansprakelijkheidsrecht” in E. WYMEERSCH (ed.), Financieel recht tussen oud en nieuw,

Antwerpen, Maklu, 1996, 632. 212 M. KRUITHOF, “Privaatrechtelijke remedies tegen inbreuken op reglementaire gedragsregels inzake

beleggingsdiensten: zorgplicht, know your customer en best execution” in H. DAEMS, I. DE MEULENEERE, R.

FELTKAMP and R. STEENNOT (eds.), Bescherming van de consument in het financieel recht, Limal, Anthemis, 2012,

31.

the general standard of care in a professional context. Hereby no innovative measure of

protection is offered that does not already exist in the civil law; article 19 MiFID (and

articles 26 and 27 of the Belgian law on financial supervision) does not even provide for a

reversal or a lightening of the general burden of proof in tort liability. If enough evidence

is gathered to convince the judge of a violation of a standard of care specific to the

banking industry, damage and causality still need to be proven.213

50. MiFID nevertheless contains very detailed rules of conduct, which classify as

obligations to produce results, too. The violation of these rules of conduct lead to

potential success stories of tort liability based on the breach of a written legal rule –

instead of the unpredictable standards of care. Article 21(1) MiFID for instance specifies

that whenever there is a specific instruction of the client, it will need to be executed

whereas articles 19(2) and 19(3) introduce specific information duties in favor of the

client. The client is without doubt a very prominently emphasized figure in the MiFID.

As a matter of fact, all the previously mentioned attempts of introducing ethics into

legislation on banking and finance by and large relate to the client of the bank or the

investment firm214. Article 4 MiFID distinguishes 3 types of clients in case of point. Firstly,

a ‘client’, explicitly defined as “any natural or legal person to whom an investment firm or

credit institution provides investment and/or ancillary services”215; secondly a

‘professional client’, explicitly defined according to criteria in Annex ll of MiFID216; and

thirdly, a ‘retail client’ explicitly defined as “a client who is not a ‘professional client”217.

51. Acting in accordance with the best interests of general members of society - the

underlying tissue to which both banker and client amongst many others belong and

162; L. CORNELIS and J. PEETERS, “Gedragsregels van bemiddelaars bij transacties in financiële instrumenten,

getoetst aan het aansprakelijkheidsrecht” in E. WYMEERSCH (ed.), Financieel recht tussen oud en nieuw,

Antwerpen, Maklu, 1996, 677. 213 M. KRUITHOF, “Privaatrechtelijke remedies tegen inbreuken op reglementaire gedragsregels inzake

beleggingsdiensten: zorgplicht, know your customer en best execution” in H. DAEMS, I. DE MEULENEERE, R.

FELTKAMP and R. STEENNOT (eds.), Bescherming van de consument in het financieel recht, Limal, Anthemis,

2012, 163-166. 214 The predecessor of MiFID, Directive of the Council nr. 93/22/EEC, 10 May 1993 on investment services in

the securities field, Pb.L. 11 June 1993, episode 141, 27 (hereinafter: ‘ISD’), on the other hand obliged banks

and investment institutions in its article 11 to “act honestly and fairly in conducting its business activities in the

best interest of its clients and the integrity of the market”. “Consequently that meant that the obligation did

not only apply in respect to clients but also to every market participant and could also be invoked by them”: L.

CORNELIS and J. PEETERS, “Gedragsregels van bemiddelaars bij transacties in financiële instrumenten, getoetst

aan het aansprakelijkheidsrecht” in E. WYMEERSCH (ed.), Financieel recht tussen oud en nieuw, Antwerpen,

Maklu, 1996, 632 (my own translation). Article 28bis Belgian law on financial supervision has remained true to

the formulation of the ISD, including the “integrity of the market” up until today. 215 Art. 4(10) MiFID. 216 Art. 4(11) MiFID. 217 Art. 4(12) MiFID.

32.

which, above all, deserves honest, fair and professional treatment - is not envisioned, not

even for banks in the current MiFID or in the adopted final proposal to repeal MiFID

(MiFID II)218. Moreover, the scope of this rule of conduct is limited and the meaning of

open norms akin ‘honest’, ‘fair’ and ‘professional’ depend on the dominating perspective.

In case of the dominating perspective being the rationality of the homo oeconomicus, an

honest, fair and professional treatment will differ dramatically from an honest, fair and

professional treatment of a bank based of social and environmental values.

1.3. THE LEGAL FORM OF BANKS IN BELGIUM

1.3.1. The principle of specialty

52. When natural persons (“autonomous holders for rights and duties”219), availing

themselves of the principle of party autonomy220, decide to collaborate based on an

agreement, an interest arises in respect to the collaboration that cannot be traced to the

sole interest of the collaborators. In order for this collaboration, founded on a private

initiative, to fully enjoy its own rights and duties (legal capacity), to have its own legal

personality in other words, it needs to meet certain requirements imposed by the law in

Belgium; only the state can grant legal personality221. Thus only categories of legal

persons envisioned by the legislator, like the association without lucrative purpose

(‘VZW’222), companies with legal personality223, foundations, professional associations,

etc., enjoy legal personality.224

53. The ‘principle of specialty’225, “a fundamental rule of legal person law”226, is

traditionally considered to limit the legal capacity and therefore also the capacity to act of

218 COM(11)656 final [Commission document nr. 656 of 2011, final version]. MiFID II also mainly focuses on

investor protection. 219 G.L. BALLON, K. GEENS, J. STUYCK and E. TERRYN, Inleiding tot het economisch recht, Mechelen, Kluwer, 2010,

49 (my own translation). 220 D.B. FLOOR, Tijdelijke handelsvennootschappen, Gent, Larcier, 2007, 83. 221 H. DE MUYNCK, Vennootschapsrecht in België, Gent, Academia Press, 2012, 5; A. FRANÇOIS, Het

Vennootschapsbelang in het Belgische Vennootschapsrecht, Antwerpen, Intersentia Rechtswetenschappen,

1999, 72; Cass. 30 juni 1854, Pas. 1854, I, 336. 222 The association without lucrative purpose is abbreviated as ‘VZW’ in Belgium. 223 The commercial company system of ‘cadres légaux obligatoires’ still exists for the commercial companies

with legal personality mentioned in art. 2, § 2 W. Venn. (hereinafter: ‘Company Code’): K. GEENS and M.

WYCKAERT, Beginselen van Belgisch Privaatrecht, IV, Verenigingen en Vennootschappen, II, Algemeen Deel,

Mechelen, Kluwer, 2011, 223. 224 G.L. BALLON, K. GEENS, J. STUYCK and E. TERRYN, Inleiding tot het economisch recht, Mechelen, Kluwer, 2010,

49-51; K. BYTTEBIER, “Onderzoek naar de criteria ter afbakening van de vennootschappen met een in hoofde

van de vennoten aanwezig verrijkingsoogmerk van de vennootschappen met een sociaal oogmerk en van de

commerciële vennootschappen van de burgelijke vennootschappen” in K. BERNAUW, P. COLLE, M. DAMBRE and I.

DEMUYNCK (eds.), Liber amicorum Yvette Merchiers, Brugge, die Keure, 2001, 404-405. 225 In this thesis the ‘the principle of specialty’ is an English translation of the Belgian concept of ‘het

specialiteitsbeginsel in het rechtspersonenrecht’. Furthermore this principle of specialty is subdivided into two

33.

legal persons. “It is one of the restrictions of legal capacity that legal persons are subject

to despite their equal status with natural persons227. The principle of specialty links the

restriction of legal capacity of the legal person to the specific objective envisioned by the

legislator for the category of legal person in question: the legal person can only be a

holder of rights and duties within the activity field that is assigned to him by his legal

objective.”228 The principle of specialty is subdivided into the legal specialty and the

association specialty. Where the ‘legal specialty’229 refers to the objective that is

envisioned by the legislator for a certain type of legal person and is prescribed in the law,

the association specialty refers to the special objective described by the legal subjects

who initiated the creation of the legal person (within the framework of the law and the

legal specialty of the legal person) in the articles of association of the legal person.230

1.3.2. Commercial company obligation

54. According to contemporary Belgian legislation every bank has to assume the legal

form of a commercial company, with the exclusion of the legal company type

‘EBVBA’231.232 This exclusion is logical as banks can only be granted authorization to

commence their activities “where at least two persons effectively direct the business of

the applicant [bank].”233 Any of the commercial company forms summed up in the first

categories in Belgium. In this thesis the first category, ‘de wettelijke specialiteit’ shall be translated as ‘legal

specialty’ whereas the second category, ‘de statutaire specialiteit’ shall be translated as ‘association specialty’. 226 K. BYTTEBIER, “Onderzoek naar de criteria ter afbakening van de vennootschappen met een in hoofde van de

vennoten aanwezig verrijkingsoogmerk van de vennootschappen met een sociaal oogmerk en van de

commerciële vennootschappen van de burgelijke vennootschappen” in K. BERNAUW, P. COLLE, M. DAMBRE and I.

DEMUYNCK (eds.), Liber amicorum Yvette Merchiers, Brugge, die Keure 2001, (my own translation) 404. 227 The equal status of legal capacity of legal persons and natural persons was confirmed by the Court of

Cassation in 1958: K. GEENS and M. WYCKAERT, Beginselen van Belgisch Privaatrecht, IV, Verenigingen en

Vennootschappen, II, Algemeen Deel, Mechelen, Kluwer, 2011, 306; Cass. 31 mei 1957, Pas. 1957, I, 1176. 228 A. FRANÇOIS, Het Vennootschapsbelang in het Belgische Vennootschapsrecht, Antwerpen, Intersentia

Rechtswetenschappen, 1999, 583-584 (my own translation); GEENS and M. WYCKAERT, Beginselen van Belgisch

Privaatrecht, IV, Verenigingen en Vennootschappen, II, Algemeen Deel, Mechelen, Kluwer 2011, 307. 229 Legal specialty is also considered to limit the capacity to act where the association specialty is considered

only to limit authority of organs of a company with legal personality to represent according to the majority of

the legal doctrine that followed since the judgment of the Court of Cassation of 31 May 1957: A. FRANÇOIS, Het

Vennootschapsbelang in het Belgische Vennootschapsrecht, Antwerpen, Intersentia Rechtswetenschappen,

1999, 584. 230 A. FRANÇOIS, Het Vennootschapsbelang in het Belgische Vennootschapsrecht, Antwerpen, Intersentia

Rechtswetenschappen, 1999, 584. 231 The ‘EBVBA’ is the abbreviation for the Belgian equivalent of the limited liability company, the ‘BVBA’, with

one founder and one shareholder; the EBVBA is actually a variety of the company form BVBA: Art. 211

Company Code. 232 Art. 15 wet 22 maart 1993 op het statuut van en het toezicht op de kredietinstellingen, BS 19 april 1993,

8650 (hereinafter: ‘Belgian Banking Law’). 233 Art. 13(1) Banking Directive. Note that the article does not specify whether the ‘two persons’ need to be

natural or legal persons. In Belgium art. 18 Belgian Banking Law does however specify that at least 2 natural

persons need to effectively direct the business of the bank. The same provision can be found in article 19 of the

upcoming Belgian Banking Law: Wetsontwerp op het statuut van en toezicht op de kredietinstellingen, Parl.St.

Kamer 2014-15, nr. 53K3406/002, 572 (hereinafter: ‘New Belgian Banking Law’).

34.

and second paragraph of article 2 of the Company Code234 therefore qualify. A change in

this obligation for banks to operate under a commercial company form shall not appear

in the near future as the new Belgian Banking Law, adopted on the 24th of April 2014,

contains the same provision235.

55. The company form coercion for banks persists furthermore as the chosen

commercial company type needs to have a commercial character236. Reasons for this

argument are the fact that the company objective of a bank, listed in its articles of

association237, by definition is to take deposits or other repayable funds from the public

and to grant credits for its own account238 and the fact that other authorized activities of

a bank classify as objective deeds of commerce according to article 2, eighth indent of

the Belgian Commercial Code239.240 These objective deeds of commerce are

distinguishable by their pursuit of profit according to Court of Cassation241.

1.3.3. Preference for the capitalist company form

56. Most banks governed by Belgian law are companies limited by shares,242 the

preeminent ‘capitalist companies’243 with legal personality. As it happens the National

Bank of Belgium is a company limited by shares, although of an exceptional kind given

that it serves the general interest244. As a result most banks in Belgium are subject to the

described principle of specialty that applies to all legal persons. The principle of specialty

that applies to companies with legal personality is very closely linked to requirements of

234 Art. 2, § 1 and § 2 Company Code. 235 Art. 16 New Belgian Banking Law. 236 The possibility of a civil company assuming the form of a commercial company provided for by art. 3, § 4

Company Code does therefore not exist for banks. 237 Art. 3, § 2 Company Code. 238 Art. 4(1) point (1) Banking Regulation. 239 Art. 2, 8th indent, W.Kh. (hereinafter: ‘Commercial Code’) 240 K. BYTTEBIER, Handboek Financieel Recht, Antwerpen, Kluwer, 2001, 496; D.B. FLOOR, Tijdelijke

handelsvennootschappen, Gent, Larcier, 2007, 37; K. BYTTEBIER, “Onderzoek naar de criteria ter afbakening van

de vennootschappen met een in hoofde van de vennoten aanwezig verrijkingsoogmerk van de

vennootschappen met een sociaal oogmerk en van de commerciële vennootschappen van de burgelijke

vennootschappen” in K. BERNAUW, P. COLLE, M. DAMBRE and I. DEMUYNCK (eds.), Liber amicorum Yvette

Merchiers, Brugge, die Keure 2001, 411. 241 Cass. 19 januari 1973, R.W. 1972-1973, 1381. 242 BNP Paribas Fortis NV, Belfius Bank NV, Bpost Bank NV, KBC Bank NV (a subsidiary of KBC Group NV),

Beobank NV, ING België NV, Record Bank NV, etc. 243 A capitalist company is a company focused on the direct or indirect enrichment (financial benefit) of the

partners or shareholders: K. BYTTEBIER, “Onderzoek naar de criteria ter afbakening van de vennootschappen

met een in hoofde van de vennoten aanwezig verrijkingsoogmerk van de vennootschappen met een sociaal

oogmerk en van de commerciële vennootschappen van de burgelijke vennootschappen” in K. BERNAUW, P.

COLLE, M. DAMBRE and I. DEMUYNCK (eds.), Liber amicorum Yvette Merchiers, Brugge, die Keure 2001, 385. 244 Art. 2 wet 22 februari 1998 tot vaststelling van het organiek statuut van de Nationale Bank van België, BS

28 maart 1998, 9377; Art. 141, § 1 Belgian law on financial supervision.

35.

the company contract.245 Not surprising as the majority of the classic legal doctrine in

Belgium, in echo of POTHIER (and the common law jurisdictions which obviously have

different inspirational sources246), honors the contractarian vision of the company247. This

‘contractarian theory on the nature of the company’248 holds that a company is a

(‘regulated’249) contract, or at least that it has contractual origins and is therefore

subjected to legal rules governing contracts.

57. In Belgium article 1108 of the Civil Code250 gives four general requisites that are

essential for the validity of a contract: the consent of the party who binds himself, his

capacity to contract, a definite object that forms the subject-matter of the undertaking

and a lawful cause of the obligation. These requirements are further specified in the

subsequent articles of the Belgian Civil Code251. FRANÇOIS has illustrated that after the

several amendments to the definition of the company in the first article of the Company

Code, the general requisites of object and cause can be situated on two levels according

to the contractarian theory: on the level of the participation contracts of the partners and

on the level of the company itself as the product of the participation contracts. According

245 A. FRANÇOIS, Het Vennootschapsbelang in het Belgische Vennootschapsrecht, Antwerpen, Intersentia

Rechtswetenschappen, 1999, 585. 246 D. MILLON, “Theories of the Corporation”, Duke.L.J. 1990, 231. 247 A. FRANÇOIS, Het Vennootschapsbelang in het Belgische Vennootschapsrecht, Antwerpen, Intersentia

Rechtswetenschappen, 1999, 64 and 743-735; A. FRANÇOIS, “De grondvoorwaarden van het

vennootschapscontract” in B. TILLEMAN, A. BENOIT-MOURY, O. CAPRASSE and N. THIRION (eds.), De oprichting van

vennootschappen en de opstartfase van ondernemingen, Brugge, die Keure, 157-171; R. VAN BOVEN and L.

DHAENE, “Drijfveren voor de oprichting van een vennootschap met rechspersoonlijkheid: is er nog plaats voor de

wilsvrijheid van partijen?” in B. TILLEMAN, A. BENOIT-MOURY, O. CAPRASSE and N. THIRION (eds.), De oprichting

van vennootschappen en de opstartfase van ondernemingen, Brugge, die Keure, 6; H. DE MUYNCK,

Vennootschapsrecht in België, Gent, Academia Press, 2012, 2. 248 The views on the legal nature of companies (significant since most banks organize themselves as companies

limited by shares accepting deposits and granting loans as one of their main activities) serve as “justifications

for the imposition of, or freedom from, legal and ethical requirements.”: K. GREENFIELD, “From Metaphor to

Reality in Corporate Law”, Stanford Agora 2000, 59. When a company is regarded as a contract, the

“relationship between managers, shareholders and other participants does not differ in the slightest degree

from ordinary market contracting between any two people”: D. MILLON, “Theories of the Corporation”, Duke. L.

J. 1990, 230. Companies as such are conceived as the product of freely contracting individuals making use of

their freedom of contract principle to bargain anything they wanted and their ‘rational’ utility calculations. “A

conception of corporate law designed to pursue public objectives would lack legitimacy because public policy

concerns should not be allowed to intrude upon individual autonomy [(unless such was bargained for)]”: D.

MILLON, “Theories of the Corporation”, Duke.L.J. 1990, 231. POUND observed how these exaggerations of the

importance of contract and private right, in order to preserve the economic interest of a certain group, all come

at the expense of the public: D. MILLON, “Theories of the Corporation”, Duke.L.J. 1990, 231. “The institution of

contract was seen as ‘the legal expression of the free market principles, and every interference with the

contract (...) was treated as an attack on the very idea of the market as a natural and neutral institution for

distributing awards.’”: K. GREENFIELD, “From Metaphor to Reality in Corporate Law”, Stanford Agora 2000, 63. 249 A regulated contract is a contract for which the legislator has created a legal framework, partially imperative

and a partially supplementary. The legal subject who wishes to conclude such a contract will therefore be

partially limited by the contract model imposed by the legislator: K. BYTTEBIER, “Onderzoek naar de criteria ter

afbakening van de vennootschappen met een in hoofde van de vennoten aanwezig verrijkingsoogmerk van de

vennootschappen met een sociaal oogmerk en van de commerciële vennootschappen van de burgelijke

vennootschappen” in K. BERNAUW, P. COLLE, M. DAMBRE and I. DEMUYNCK (eds.), Liber amicorum Yvette

Merchiers, Brugge, die Keure 2001, 382. 250 Art. 1108 BW (hereinafter: ‘Belgian Civil Code’). 251 Art. 1109-1133 Belgian Civil Code.

36.

to FRANÇOIS these so-called special validity requirements of the company contract on one

hand specify the cause and the object of the participation contract of the partners and

supplement the cause and the object of the company contract on the other.252

58. The object of a participation contract is considered to be the contribution of the

partners to the company. The cause of the participation contract is slightly more complex

since the first of July 1996253. Ever since the cause can ‘revolutionarily’254 be understood

as the making of ‘profit’255 and henceforth distributing it between the partners (individual

profit distribution purpose256), in which case the company is considered to be a capitalist

company, or dispensing it to the social purpose of the company (individual profit

dispensation purpose) as defined in the articles of association, in which case the

company is considered to be a social purpose company (‘VSO’257) - a variety of the

commercial company forms with legal personality summed up in the second paragraph of

article 2 of the Company Code except for the European Company and the European

Cooperative Society258 (and the European Economic Interest Grouping as it is not a

company259). The VSO is the only legally permitted application case of a company that is

not established with the aim to generate profit for the distribution amongst the partners

252 A. FRANÇOIS, “De grondvoorwaarden van het vennootschapscontract” in B. TILLEMAN, A. BENOIT-MOURY, O.

CAPRASSE and N. THIRION (eds.), De oprichting van vennootschappen en de opstartfase van ondernemingen,

Brugge, die Keure, 187-188. The specification and the supplementation refer to the general requirements for

the validity of contracts mentioned in the Belgian Civil Code. 253 Art. 113 wet 13 april 1995 tot wijziging van de wetten op handelsvennootschappen, gecoördineerd op 30

november 1935, BS 17 juni 1995, 17.492 (hereinafter: ‘law establishing the VSO’). 254 A company was assumed to generate profit which would be distributed between the partners. The pure

delineation of the summa divisio between the company categories has been affected by the introduction of the

VSO, the new company for the social economy: D.B. FLOOR, Tijdelijke handelsvennootschappen, Gent, Larcier,

2007, 68; A. FRANÇOIS, Het Vennootschapsbelang in het Belgische Vennootschapsrecht, Antwerpen, Intersentia

Rechtswetenschappen, 1999, 187. 255 Art. 1 of the Company Code refers to a “direct or indirect financial benefit” and not ‘profit’ as such. The

majority of the legal doctrine is of the conviction that this formulation implies a broad interpretation of the

profit concept (like intended by POTHIER and DOMAT), hence for reasons of convenience the term ‘profit’ will be

used in this thesis: A. FRANÇOIS, Het Vennootschapsbelang in het Belgische Vennootschapsrecht, Antwerpen,

Intersentia Rechtswetenschappen, 1999, 185; K. GEENS and M. WYCKAERT, Beginselen van Belgisch Privaatrecht,

IV, Verenigingen en Vennootschappen, II, Algemeen Deel, Mechelen, Kluwer 2011, 223. 256 The one and only cause of the participation contract until the introduction of the VSO. 257 The Belgian abbreviation for Social Purpose Company, ‘VSO’ will be used in this thesis to avoid confusion as

‘SPC’ stands for many other things like a Special Purpose Company, a Segregated Portfolio Company, the Social

Protection Committee of the EU, just to name a few. The provisions concerning the VSO can be found in art.

661-669 Company Code. 258 A. FRANÇOIS, “De grondvoorwaarden van het vennootschapscontract” in B. TILLEMAN, A. BENOIT-MOURY, O.

CAPRASSE and N. THIRION (eds.), De oprichting van vennootschappen en de opstartfase van ondernemingen,

Brugge, die Keure, 188-189. 259 D. VAN GERVEN, Beginselen van Belgisch Privaatrecht, IV, Rechtspersonen, I, Rechtspersonen in het

Algemeen, Verenigingen, Stichtingen & Publiekrechtelijke Rechtspersonen, Mechelen, Kluwer, 2007, 230.

37.

(the aim to generate profit needs to exist anyhow260, the question since the law

establishing the VSO remains whereon the generated profit is to be spent)261.

59. The object of the company contract then is the exercise of one or more precisely

defined activities (the company objectives) in the articles of association. The ‘cause’262 of

the company contract was originally to aim at a generation of profit for the partners.

Given that the articles of association can deviate from this (since the law establishing the

VSO), the cause can now be understood as the collective profit distribution purpose or

the collective profit dispensation purpose (the cause of dispensing the aimed at and

realized profit on a determined ‘internal or external social purpose’263) in connection to

260 BYTTEBIER uses a two-phase-approach to explain the operation of a company. The first phase for both

capitalist company and social purpose company is the aim to generate profit (it is the aim to generate profit

and not the actual generation of profit as the legislator cannot desire all companies to be successful in the

making of profit). The second phase is where the difference between the capitalist company and the social

purpose company arises; if profit is generated in the first phase, is this profit then spend on the enrichment of

the partners or on a social purpose as defined in the articles of association?: K. BYTTEBIER, “Onderzoek naar de

criteria ter afbakening van de vennootschappen met een in hoofde van de vennoten aanwezig

verrijkingsoogmerk van de vennootschappen met een sociaal oogmerk en van de commerciële

vennootschappen van de burgelijke vennootschappen” in K. BERNAUW, P. COLLE, M. DAMBRE and I. DEMUYNCK

(eds.), Liber amicorum Yvette Merchiers, Brugge, die Keure 2001, 402-403; A. FRANÇOIS, Het

Vennootschapsbelang in het Belgische Vennootschapsrecht, Antwerpen, Intersentia Rechtswetenschappen,

1999, 205. 261 K. BYTTEBIER, “Onderzoek naar de criteria ter afbakening van de vennootschappen met een in hoofde van de

vennoten aanwezig verrijkingsoogmerk van de vennootschappen met een sociaal oogmerk en van de

commerciële vennootschappen van de burgelijke vennootschappen” in K. BERNAUW, P. COLLE, M. DAMBRE and I.

DEMUYNCK (eds.), Liber amicorum Yvette Merchiers, Brugge, die Keure 2001, 390. 262 The cause can be understood as the underlying motivation of the legal act(s) which lead to the emergence of

a company: K. BYTTEBIER, “Onderzoek naar de criteria ter afbakening van de vennootschappen met een in

hoofde van de vennoten aanwezig verrijkingsoogmerk van de vennootschappen met een sociaal oogmerk en

van de commerciële vennootschappen van de burgelijke vennootschappen” in K. BERNAUW, P. COLLE, M. DAMBRE

and I. DEMUYNCK (eds.), Liber amicorum Yvette Merchiers, Brugge, die Keure 2001, 387. 263 Art. 661, 3° Company Code mentions that the social purpose of the VSO (the dispensation of the profit) can

be internal or external. COECKELBERGH notes that this sudden use of the terms ‘internal or external’ is not

defined by the law or the preparatory works. COECKELBERGH also remarks that most of the legal doctrine regards

this terminology superfluous, refusing to take a stand on what an ‘internal or external’ social purpose is by

simple mutism. To make matters worse, the minority of legal scholars who do discuss the difference between

an internal or external purpose give different definitions: D. COECKELBERGH, T. BREESCH and P. VAN MERRIS,

Ondernemen met de Vennootschap met Sociaal Oogmerk, Gent, Mys & Breesch, 2001, 44. BYTTEBIER is one of

the scholars who explicitly differentiates between the internal and external social purpose of a VSO. According

to BYTTEBIER, if the VSO has an external social purpose it is ought to dispense its own generated profit on the

financing of the social activities of another entity or on the financial support of this external entity occupied with

social purposes. If the VSO has an internal social purpose on the other hand it is ought to spend the generated

profit directly on the social purpose it supports itself. Thus a VSO with an internal social purpose exhibits a

close relation with an association without lucrative purpose except for the fact that a VSO can exploit any civil

or commercial activity to realize this profit: K. BYTTEBIER, “Onderzoek naar de criteria ter afbakening van de

vennootschappen met een in hoofde van de vennoten aanwezig verrijkingsoogmerk van de vennootschappen

met een sociaal oogmerk en van de commerciële vennootschappen van de burgelijke vennootschappen” in K.

BERNAUW, P. COLLE, M. DAMBRE and I. DEMUYNCK (eds.), Liber amicorum Yvette Merchiers, Brugge, die Keure

2001, 391 and 410-411.

38.

the cause of the participation contract, depending on whether the company is question is

a capitalist company or its antagonist, a VSO.264

1.3.3.1. The legal specialty of capitalist company forms

60. Now that the requirements of a company contract are established, the legal

specialty, a matter of ‘public order’265, of capitalist companies can be discussed more

clearly. The legal specialty266 of capitalist companies refers to their profit distribution

purpose which means that they can only act with the aim to make and distribute profit

amongst the partners (cause of the company contract). Usually this legal specialty is

taken into consideration when judging the validity of donations with a charitable

character by a capitalist company267. In juxtaposition, the legal specialty of the VSO is

the profit dispensation purpose; all acts of a VSO are supposed to be aimed at the

realization of profit which should mainly be dispensed on the social purpose specified in

the articles of association - the social purpose the partners of the VSO consider to be

important enough to spend the profit on268.

264 A. FRANÇOIS, “De grondvoorwaarden van het vennootschapscontract” in B. TILLEMAN, A. BENOIT-MOURY, O.

CAPRASSE and N. THIRION (eds.), De oprichting van vennootschappen en de opstartfase van ondernemingen,

Brugge, die Keure, 190-192. 265 The legal specialty is the objective that is envisioned by the legislator for certain legal entities in the law; it

is an aspect of the legal organization of legal personality. Legal specialty is a rule of public order in Belgium.

The Court of Cassation has defined public order as a rule in private law which anchors the legal foundations of

the ethical, political, economic and social order: Cass. 9 december 1948, Pas. 1948, I, 699. A violation of the

legal specialty therefore leads to absolute nullity: A. FRANÇOIS, Het Vennootschapsbelang in het Belgische

Vennootschapsrecht, Antwerpen, Intersentia Rechtswetenschappen, 1999, 591; W. VAN GERVEN, Beginselen van

het Belgisch Privaatrecht, I Algemeen deel, Antwerpen, Scriptoria, 1973, 439; K. BYTTEBIER, “Onderzoek naar de

criteria ter afbakening van de vennootschappen met een in hoofde van de vennoten aanwezig

verrijkingsoogmerk van de vennootschappen met een sociaal oogmerk en van de commerciële

vennootschappen van de burgelijke vennootschappen” in K. BERNAUW, P. COLLE, M. DAMBRE and I. DEMUYNCK

(eds.), Liber amicorum Yvette Merchiers, Brugge, die Keure 2001, 405-406. From a practical point of view it is

therefore more reasonable to argue that banks in Belgium should be obliged to do business under the company

type variety VSO rather than to plead for a revolution in the Belgian company law (infra). 266 A contrario the association specialty of a capitalist company is comprehended as the association specialty, as

the activities the capitalist company can exploit in order to generate the collective profit for distribution

amongst the partners (object of the company contract): A. FRANÇOIS, Het Vennootschapsbelang in het Belgische

Vennootschapsrecht, Antwerpen, Intersentia Rechtswetenschappen, 1999, 587. 267 A. FRANÇOIS, Het Vennootschapsbelang in het Belgische Vennootschapsrecht, Antwerpen, Intersentia

Rechtswetenschappen, 1999, 591. Donations of capitalist companies to companies within a concern or business

group and donations in the form of sponsorships of sport and similar activities in so far as these are motivated

by publicity and image reasons, are allowed: K. BYTTEBIER, “Onderzoek naar de criteria ter afbakening van de

vennootschappen met een in hoofde van de vennoten aanwezig verrijkingsoogmerk van de vennootschappen

met een sociaal oogmerk en van de commerciële vennootschappen van de burgelijke vennootschappen” in K K.

BERNAUW, P. COLLE, M. DAMBRE and I. DEMUYNCK (eds.), Liber amicorum Yvette Merchiers, Brugge, die Keure

2001, 408. 268 A. FRANÇOIS, Het Vennootschapsbelang in het Belgische Vennootschapsrecht, Antwerpen, Intersentia

Rechtswetenschappen, 1999, 585; A. FRANÇOIS, “De grondvoorwaarden van het vennootschapscontract” in B B.

TILLEMAN, A. BENOIT-MOURY, O. CAPRASSE and N. THIRION (eds.), De oprichting van vennootschappen en de

opstartfase van ondernemingen, Brugge, die Keure, 193.

39.

61. According to this analysis it means that as it stands today banks in Belgium (as

they are companies, the “primary vehicles of capitalism”269) are ‘naturally’ obliged to

‘chase’ profits. Le but lucratif is the causa finalis of the bank’s finis operantium270.

Moreover, because most of the banks in Belgium are companies limited by shares with a

commercial character they are obliged by law to distribute the acquired profit amongst

the shareholders and not be distracted by any social aspirations. The duties of the bonus

pater familias of the Code Civil are barely comparable to the duties of a partner in a

company hoping to be profitable or a merchant of the Code de Commerce271.

Under a legal system based on private property, the reason of the homo oeconomicus,

laissez-faire type of legislation and regulation, the principle of party autonomy and its

subsequent manifestation, the freedom of contract , it is more than plausible that banks

will opt for a pure capitalist company form (instead of a company form assuming the

VSO variety) to exploit their activities, since this is the ‘rational’ choice (rationality as

understood by the homo oeconomicus of finding new ways to maximize profit)272: “why

would [a company] support a public cause? Within an economic framework modelled on

the premise of homo oeconomicus, the behavior of [any] social enterprise is indeed

irrational.”273

This entails the leeway for banks, like for any other legal subject in the world of

commerce, to choose with whom it wishes to conclude a contract and what the terms and

focus of the contract will be. Scilicet the bank cannot be forced to care for society, to

conclude a contract, to handle a transaction or to execute a command if it is not obliged

to do so by virtue of law, regulation or contract (reservation needs to be made for the

current account which is a basic banking service and for this reason a right since 2003274,

269 BUTLER refers to companies overall as the “primary vehicles of capitalism”, which is a true statement for the

time he is writing in; before the rise of the ‘social economy’ concerned with philanthropic behavior and the

subsequent company forms like the VSO. By now his remark is probably only valid for capitalist companies

(infra): H.N. BUTLER, “The Contractual Theory of the Corporation”, Geo.Mason U.L.Rev. 1989, 99. 270 K. GEENS and M. WYCKAERT, Beginselen van Belgisch Privaatrecht, IV, Verenigingen en Vennootschappen, II,

Algemeen Deel, Mechelen, Kluwer 2011, 222. 271 B. CRETTEZ, B. DEFFAINS, G. LEYTE and L. PFISTER, “On the Law and Economics of the Origins of the French

Code Civil” in M. FAURE and J. SMITS (eds.), Does Law Matter? On Law and Economic Growth, Cambridge,

Intersentia, 2012, 251 and 259. 272 The institutionalized society – the legal system – does net cherish any expectations at the moment for banks

to act in any other way. Presently (much more so before the crisis), if a bank decides to engage in activities

which do not contribute to the social community no legal consequences are attached to this decision: K.

BYTTEBIER, “Gedragsregelen bij financiлle transacties: huidige praktijk en perspectieven” in M. TISON, C. VAN

ACKER and J. CERFONTAINE (eds.), Financiële regulering op zoek naar nieuwe evenwichten. Volume II. Financiële

markten, financiële transacties, prudentieel recht, Antwerpen, Intersentia, 2003, 7. 273 L. TIMMERMAN, J.M. DE JONGH and A.J.P. SCHILD, “The Rise of the Social Enterprise: How Social Enterprises Are

Changing Company Law Worldwide” in S. MULLER, S. ZOURIDIS, M. FRISHMAN and L. KISTEMAKER (eds.), The Law

of the Future and the Future of the Law, Oslo, Torkel Opsahl Academic EPublisher, 2011, 309. 274 Wet 24 maart 2003 tot instelling van een basis-bank-dienst, BS 15 mei 2003, 26.402.

40.

still the right is not absolute as there are conditions under which a bank can also refuse

to provide the basic banking service275); that will remain a commercial decision as the

bank has to consider its profitability. It is therefore justified for a bank to decline dealings

with a potential client when no profit is to be made from the contractual relationship.276

62. In these circumstances no real duty exists to conduct business of the capitalist

company to the benefit of creditors, customers or anybody else except for the partners or

shareholders277. Especially in Belgium where the directors are an emanation of the

majority partners or shareholders278 (appropriately also referred to as the ‘blockholders’),

the ultimate beneficiaries of the activities of the persons by whom it is carried out279.

“These shareholders do not want to see management ([management is more appropriate

in this context as most boards of directors of banks which take the form of a company

limited by shares delegate the effective leadership of the company to management280)]

spending money to benefit nonshareholders when regulations and contracts do not

require it”281 – “if management acts in the interest of some nonshareholder constituency,

it is assumed that [company] profits are reduced accordingly, and shareholder wealth is

thereby diminished”282.

“It seems clear that one of the engines driving the reckless behaviour that led to the

financial crisis was the desire to enhance shareholder returns even if that meant pursuit

of excessively risky investment strategies.”283 Although there is no conclusive (but very

substantial) evidence of bank shareholders pushing executives and boards to take

excessive risk or leverage, dangerous for society, it is very doubtful whether

275 Art. 6 wet 24 maart 2003 tot instelling van een basis-bank-dienst, BS 15 mei 2003, 26.403. The European

Commission’s proposals for a right for citizens to a basic bank account has been recently backed by the

European Parliament and Council: COM(14)75 [Commission document nr. 75 of 2014]. 276 R. SMITS, S. STIJNS and K. VANDERSCHOT, “Algemene Bankvoorwaarden” in B. TILLEMAN and B. DU LAING (eds.),

Bankcontracten, Brugge, die Keure, 2003, 15. 277 In common law legal doctrine this is known as the ‘shareholder primacy principle’. 278 Indeed, the agency-problem identified by BERLE and MEANS does not apply to Belgium as the shareholding is

not as dispersed as in the U.S.A. On the contrary, shareholding is so concentrated in the hands of one or a few

shareholders that management is at times considered not to be autonomous enough (a disadvantage for the

minority shareholders): K. GEENS and M. WYCKAERT, Beginselen van Belgisch Privaatrecht, IV, Verenigingen en

Vennootschappen, II, Algemeen Deel, Mechelen, 2011, 34; A. François, Het Vennootschapsbelang in het

Belgische Vennootschapsrecht, Antwerpen, Intersentia Rechtswetenschappen, 1999, 652. 279 SJÅFJELL has pointed out that “narrow, short-term shareholder primacy is the norm according to European

Company law”: B. SJÅFJELL, “Regulating Companies as if the World Matters: Reflections from the Ongoing

Sustainable Companies Project”, Wake Forest L.Rev. 2012, 130. 280 I. DE MEULENEERE, “Compliance in een nieuw regelgevend kleedje’” in EVBFR – BELGIUM, 20 jaar Bankwet,

Antwerpen, Intersentia, 2013, 151; Art. 26 Belgian Banking Law; Art. 24 New Belgian Banking Law. 281 D. MILLON, “Shareholder Social Responsibility”, Seattle U.L.Rev. 2013, 928. 282 D. MILLON, “Shareholder Social Responsibility”, Seattle U.L.Rev. 2013, 922. 283 D. MILLON, “Shareholder Primacy in the Classroom After the Financial Crisis”, J.Bus. & Tech.L. 2013, 192.

41.

management and supervisory boards, appointed by the shareholders, will ever really

serve the interests of non-shareholder constituencies as things stand today284.

“In effect, existing governance arrangements in many jurisdictions directly or indirectly

(to differing degrees) give primacy to the financial interests of shareholders and,

thereby, create innovative structures which reward opportunistic behaviour and socially

excessive risk-taking”285 instead of giving managers of banks tools to “resist shareholder

pressure”286 or letting shareholders know it is their duty to care for society. There are

arguments that giving managers more than one legal duty will increase costs of

monitoring their performance, especially if the second duty is as seemingly abstract and

unmeasurable as the pursuit of usefulness for society. However Macey has contested

these, arguing the ‘too many masters’ argument is overstated, since company managers

have long had to balance conflicting desirers of different shareholders287.

1.3.3.2. The shareholders of banks

63. One can dispute the former claim about shareholders288 of banks. The prudential

dimension of governance of financial institutions, like banks, stresses the suitability of

shareholders for such institutions to ensure their sound and prudent functioning289. The

Banking Directive imposes the following on the Member States: “The competent

authorities shall refuse authorisation to commence the activity of a credit institution

unless a credit institution has informed them of the identities of its shareholders or

members, whether direct or indirect, natural or legal persons, that have qualifying

holdings and of the amounts of those holdings or, where there are no qualifying holdings,

of the 20 largest shareholders or members (...) The competent authorities shall refuse

authorisation to commence the activity of a credit institution if, taking into account the

need to ensure the sound and prudent management of a credit institution, they are not

satisfied as to the suitability of the shareholders or members, in particular where the

284 M. BECHT, P. BOLTON and A. ROELL, “Why bank governance is different”, Oxf.Rev.Econ.Pol. 2011, 450-458. 285 D. AWREY, W. BLAIR and D. KERSHAW, “Between Law and Markets”, LSE Law, Society and Economy Working

Papers 2012, 4. 286 D. AWREY, W. BLAIR and D. KERSHAW, “Between Law and Markets”, LSE Law, Society and Economy Working

Papers 2012, 38. 287 K. GREENFIELD, “From Metaphor to Reality in Corporate Law”, Stanford Agora 2000, 66; J.R. MACEY, “An

Economic Analysis of the Various Rationales for Making Shareholders the Exclusive Beneficiaries of Corporate

Fiduciary Duties”, 21 Stetson L.Rev. 1991, 31-33. 288 Recently (as a response to the crisis) scholars have been favoring the idea of shareholders of banks being

financially responsible for their bank’s liability beyond the capital they have invested. Such ideas also exist for

the shadow banking sector: S.L. SCHWARCZ, “The Governance Structure of Shadow Banking: Rethinking

Assumptions about Limited Liablity” http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2364126, 1-39. 289 K. MACOURS, “De interne organisatie van banken” in EVBFR – BELGIUM, 20 jaar Bankwet, Antwerpen,

Intersentia, 2013, 42.

42.

criteria set out in Article 23(1) are not met. Article 23(2) and (3) and Article 24 shall

apply.”290

Consecutively the suitability of the shareholders is measured in concordance with their

reputation, knowledge, skills, professional integrity and experience291 throughout the

entire life-span of the shareholding functions292 (these criteria are also used to assess the

fitness and propriety of the members of the management293). The suitable shareholders

in turn need to appoint members of the management with the “knowledge, qualifications

and skills necessary to safeguard proper and prudent management of the institution.”294

In Belgium these European requirements can be found in the articles 9, 17, 24, and 25 of

the Belgian Banking Law295. Additionally the Belgian supervisory authority296, the National

Bank of Belgium, expects the controlling shareholders of a bank to contribute to a

healthy and prudent policy of the bank targeted to ensure a continuity-oriented

development297. From 2008 to 2012 no turbulent cases in the landscape of banks

concerning the suitability of shareholders have been reported in Belgium298.

64. And how could there be any incidents? ‘Sound’, ‘skills’, ‘prudent’, ‘experienced’,

‘healthy’, etc. are all open and vague concepts; open and vague concepts which lend

themselves to be defined in accordance with the circumstances and the spirit of the

time299. Up until recently these concepts have been tainted with the rationality of the

homo oeconomicus. The understanding of a homo oeconomicus is very different from a

290 Art. 14 Banking Directive. 291 Art. 23 Banking Directive. 292 The conditions to which shareholders of banks need to comply according to the Banking Directive originally

derive from Directive of the European Parliament and of the Council nr. 2007/44/EC, 5 September 2007

amending Council Directive 92/49/EEC and Directives 2002/83/EC, 2004/39/EC, 2005/68/EC and 2006/48/EC

as regards procedural rules and evaluation criteria for the prudential assessment of acquisitions and increase of

holdings in the financial sector, Pb.L. 21 September 2007, episode 247, 1. 293 Art. 91 Banking Directive. The role of the management and their suitability criteria fall beyond the scope of

the thesis. 294 Consideration 59 Banking Directive. 295 Respectively art. 9 and art. 18 New Belgian Banking Law. 296 Because of the introduction of the so-called ‘Twin-Peaks’-model (Wet 2 juli 2010 tot wijziging van de wet

van 2 augustus 2002 betreffende het toezicht op de financiële sector en de financiële diensten en van de wet

van 22 februari 1998 tot vaststelling van het organiek statuut van de Nationale Bank van België, en houdende

diverse beplalingen (1), BS 28 september 2010, 59.140.) in the supervisory framework of banks there are now

two supervisory authorities in Belgium; the National Bank of Belgium (NBB) and the Financial Services Market

Authority (FSMA). In this case the NBB is responsible for the supervision according to article 46 of the Belgian

Banking Law. 297 M. WYCKAERT, “Geschikt bevonden? Aandeelhouderstransparantie in financiële instellingen’” in EVBFR –

BELGIUM, 20 jaar Bankwet, Antwerpen, Intersentia, 2013, 70; Principle 1 Commissie voot het Bank-, Financie-

en Assurantiewezen (hereinafter: CBFA), circulaire over de prudentiële verwachtingen van de CBFA inzake

deugedelijk bestuur van financiële instellingen, 30 maart 2007, nr. PPB-2007-6-CPB-CPA,

www.nbb.be/doc/cp/nl/bo/circ/pdf/ppb_2007_6_cpb_cpa.pdf. 298 M. WYCKAERT, “Geschikt bevonden? Aandeelhouderstransparantie in financiële instellingen’” in EVBFR –

BELGIUM, 20 jaar Bankwet, Antwerpen, Intersentia, 2013, 74. 299 A. FRANÇOIS, Het Vennootschapsbelang in het Belgische Vennootschapsrecht, Antwerpen, Intersentia

Rechtswetenschappen, 1999, 166-167 and 170.

43.

community concerned individual who owns shares in any company. The sound and

prudent functioning of a bank according to this type of rationality employed by a

shareholder is exactly what got the banking industry into the crisis in the first place.

Hence, taking this consideration into account, shareholders of banks turn out not to be

that different after all from shareholders of regular capitalist companies with legal

personality notwithstanding the vague prudential requirements.

1.3.3.3. Company interest

65. An additional open concept300 of major importance, since it transcends all formal

sources of company law301 in Belgium, that supports the idea of bank shareholders

lacking societal concerns is the ‘company interest’302. There is no concrete and uniform

legal definition of this norm hence its meaning is entirely dependent on jurisdiction and

legal doctrine303. FRANÇOIS remarks that the typology of the company interest according

to GEENS has received most recognition in Belgium. GEENS distinguishes between the

narrow vision of the company interest which claims that the company interest should be

equated with the collective profit interest of the (existing and future) shareholders and

the broad vision of the company interest which postulates company interest as a sort of

guiding reference point aiming at the healthy existence, the growth and the continuity of

the company itself. The latter vision is very closely related to the idea that the company

interest is a result of the balancing of all interests involved with the company (the

interests of the company as a legal person itself, the shareholders, the employees, the

creditors, and others like inter alia the community in case the company fulfills an

important role therein304).305

66. Even though the same judge can give either a broad or narrow interpretation of the

company interest, depending on the facts,306 the narrow vision dominates in Belgium de

300 A. FRANÇOIS, Het Vennootschapsbelang in het Belgische Vennootschapsrecht, Antwerpen, Intersentia

Rechtswetenschappen, 1999, 383. 301 A. FRANÇOIS, Het Vennootschapsbelang in het Belgische Vennootschapsrecht, Antwerpen, Intersentia

Rechtswetenschappen, 1999, 3. 302 In this thesis the translation ‘company interest’ refers to the Belgian concept known as

‘vennootschapsbelang’. 303 A. FRANÇOIS, Het Vennootschapsbelang in het Belgische Vennootschapsrecht, Antwerpen, Intersentia

Rechtswetenschappen, 1999, 27 and 383. 304 A. FRANÇOIS, Het Vennootschapsbelang in het Belgische Vennootschapsrecht, Antwerpen, Intersentia

Rechtswetenschappen, 1999, 404-441. 305 A. FRANÇOIS, Het Vennootschapsbelang in het Belgische Vennootschapsrecht, Antwerpen, Intersentia

Rechtswetenschappen, 1999, 27 and 386. 306 A. FRANÇOIS, Het Vennootschapsbelang in het Belgische Vennootschapsrecht, Antwerpen, Intersentia

Rechtswetenschappen, 1999, 387.

44.

lege lata307. For companies with a legal personality the narrow vision of the company

interest more or less corresponds with their legal specialty, which comes down to the

collective profit distribution purpose for capitalist companies (collective profit interest

which then has to be distributed between the shareholders). Recently this has been

confirmed by the Court of Cassation that stated that the interest of the company is

determined by the collective profit interest of the existing and future shareholders308.

67. Nevertheless this does not have to mean that the narrow vision of the company

interest is an indispensable promotion of “blind capitalism”309 and of stolid profit

maximization. Several laws and general principles of law like the objective good faith and

the prohibition of the abuse of rights safeguard the interests of other stakeholders.310

Special regulations are also in place to protect the general interest “for companies

operating a certain type of business”311 such as banks.

68. Even though the financial and economic crisis has demonstrated that these have

not been sufficient to protect the interest of the various stakeholders including society as

a whole this time round, there is room for change. The debate on the interpretation of

company interest is far from closed. In a democratic state like Belgium the legislator will

eventually have the final word312. When he finally decides to ‘speak’ on the subject

matter he will have to decide whether the various stakeholders should receive the

necessary protection through the concept of company interest313 and if so, he will

hopefully reserve a special definition for the company interest of companies exploiting a

banking enterprise.

307 A. FRANÇOIS, Het Vennootschapsbelang in het Belgische Vennootschapsrecht, Antwerpen, Intersentia

Rechtswetenschappen, 1999, 418 and 755; A. FRANÇOIS and K. BYTTEBIER, “For-profit or not-for-profit? That’s

the question. Profit maximization in company law: myth or (legal) reality” in L. CORNELIS (ed.), Title unknown at

the time of writing this thesis, X, X, X, X. 308 Cass. 28 november 2013, AR C.12.0549.N; A. FRANÇOIS and K. BYTTEBIER, “For-profit or not-for-profit? That’s

the question. Profit maximization in company law: myth or (legal) reality” in L. Cornelis (ed.), Title unknown at

the time of writing this thesis, X, X, X, X. 309 A. FRANÇOIS, Het Vennootschapsbelang in het Belgische Vennootschapsrecht, Antwerpen, Intersentia

Rechtswetenschappen, 1999, 649 (my own translation). 310 A. FRANÇOIS , Het Vennootschapsbelang in het Belgische Vennootschapsrecht, Antwerpen, Intersentia

Rechtswetenschappen, 1999, 643-650; K. GREENFIELD, “From Metaphor to Reality in Corporate Law”, Stanford

Agora 2000, 61. 311 A. FRANÇOIS and K. BYTTEBIER, “For-profit or not-for-profit? That’s the question. Profit maximization in

company law: myth or (legal) reality” in L. CORNELIS (ed.), Title unknown at the time of writing this thesis, X, X,

X, X. 312 A. FRANÇOIS, Het Vennootschapsbelang in het Belgische Vennootschapsrecht, Antwerpen, Intersentia

Rechtswetenschappen, 1999, 403 and 755. 313 A. FRANÇOIS and K. BYTTEBIER, “For-profit or not-for-profit? That’s the question. Profit maximization in

company law: myth or (legal) reality” in L. CORNELIS (ed.), Title unknown at the time of writing this thesis, X, X,

X, X.

45.

1.4. THE NEW BELGIAN BANKING LAW: THE SEPERATION OF ACTIVITIES

69. After 21 years, the scenery for all Belgian banks is about to experience a change

with the recent adoption of a new banking law in Belgium, partially inspired by European

initiatives (mainly by the Banking Directive, Directive 2011/89/EU314 and the proposed

Regulation315 to ban speculative activities, like proprietary trading for too-big-to-fail

banks and catering for the potential separation of other risky trading activities carried out

by these banks in accordance with the recommendations of the High Level Expert Group

chaired by Liikanen) and partially by independent national ambitions.316

70. The New Belgian Banking Law remains faithful to the structure of its predecessor

due to the widely enjoyed recognition of its structural quality and flexibility317. At first

sight, the content nevertheless seems to differ significantly. To a large extent the New

Belgian Banking Law will put new rules concerning supervision, resolution and structure

of banking activities into practice. Yet after closer examination the new law amounts to a

patchwork of measures of different natures as a substitute for an overarching philosophy.

Patching however is by no means fixing, as observed by JORION318.

71. The provisions ensuring the separation of activities of banks, by mandating a ban

for all Belgian banks to ‘trade on their own account’319 from the 1st of January 2015 is

probably the most noteworthy alteration320. This ban is a direct answer of the Belgian

Government to the emerged realization, after the last financial and economic crisis, that

excessive volumes of ‘speculative’321 (and therefore risky) trading activity by banks are

dangerous for the real economy322.

314 Directive of the European Parliament and of the Council nr. 2011/89/EU, 16 November 2011 amending

Directives 98/78/EC, 2002/87/EC, 2006/48/EC and 2009/138/EC as regards the supplementary supervision of

financial entities in a financial conglomerate, Pb.L. 8 December 2011, episode 326, 113. 315 COM(14)63 [Commission document nr. 63 of 2014]. 316 Wetsontwerp op het statuut van en toezicht op de kredietinstellingen, Parl.St. Kamer 2014-15, nr.

53K3406/001, 3 and 12. 317 Wetsontwerp op het statuut van en toezicht op de kredietinstellingen, Parl.St. Kamer 2014-15, nr.

53K3406/001, 15. 318 Paul JORION. 2014. “Downstream rather than upstream, woe to us!” speech, Studiedag Corporate governance in de financiele sector: uitdagingen na de financiele crisis en impact van de nieuwe bankenwet,

Stewardship of Finance Chair, Vrije Universiteit Brussel, 25 April 2014. 319 “Trade on their own account” is defined as “trade in financial instruments using own capital in the context of

the trading book”: Art. 118, § 1, 1° New Belgian Banking Law (my personal translation). 320 Art. 119 New Belgian Banking Law. 321 JORION has remarked on the social uselessness of speculation on several accounts and has lead a personal

crusade against this activity of which the sole concern is to sell at a price much higher than the purchase price,

since 2007: P. JORION, Why Stewardship of Finance?, Antwerpen, Intersentia, 2012, 6-7. 322 Wetsontwerp op het statuut van en toezicht op de kredietinstellingen, Parl.St. Kamer 2014-15, nr.

53K3406/001, 109-113.

46.

72. Article 121 of the New Belgian Banking Law contains several exclusions to the ban

to trade on their own account323: banks “must conduct own-account trading activities via

a separate legal entity unless such activities exclusively relate to the provision to clients

of investment and auxiliary services, market-making activities, activities for the hedging

of risk for [banks], sound and prudent management of the liquid assets of [banks] and

the purchase and sale of financial instruments acquired as long-term holdings and are

carried out in accordance with certain governance, internal control and reporting

requirements.”324 Lord Adair TURNER would question the exclusion from the range of

activities in the law related to market-making as its social usefulness appears dubious.

Analysis exists suggesting that “active trading which both requires and creates liquid

markets, can be used not to deliver additional value to end investors or users of markets,

but to extract economic rent. Additional trading, for instance, can create volatility against

which customers seek to protect themselves by placing value on the provision of market

liquidity. The fact that customers place great value on market liquidity, and thus support

large market-making profits, therefore is in no way proving that the increased trading

activity is value added at the social level.”325

73. Another difficulty with this ban is that it does not apply to foreign banks providing

banking activities in Belgium, only to Belgian banks and their secondary

establishments326. This might signify an unfair competitive disadvantage to Belgian banks

until the European legislation imposes a similar ban for all banks operating on the

territory of the European Union. A different reservation about the effectiveness of this

rule is that its success probably depends on “the appropriate design of the trading book

capital rules”327, as Lord Adair TURNER remarked. Taking into consideration that the core

principles of the Basel Committee were one of the material sources of the New Belgian

Banking Law328 and the fact that all capital rules for banks in Europe are very much

influenced by this transnational regulatory network (supra), this might not be the case.

323 Art. 121 New Belgian Banking Law; Wetsontwerp op het statuut van en toezicht op de kredietinstellingen,

Parl.St. Kamer 2014-15, nr. 53K3406/001, 113. 324 European Central Bank (hereinafter: ECB), opinion on the status and supervision of credit institutions, 24

February 2014, nr. CON/2014/17, www.ecb.europa.eu/ecb/legal/pdf/con_2014_17_f_sign.pdf. 325 A. TURNER et al., The Future of Finance: The LSE Report, 40. The exclusion of market-making activities

reflect once more the persistence of the “dominant conventional wisdom of the last several decades based on

the assumptions of rational expectations and of efficient and self-equilibrating markets.”: A. TURNER et al., The

Future of Finance: The LSE Report, 39. 326 Art. 117 New Banking Law; Wetsontwerp op het statuut van en toezicht op de kredietinstellingen, Parl.St.

Kamer 2014-15, nr. 53K3406/001, 116. 327 A. TURNER et al., The Future of Finance: The LSE Report, 45. 328 Wetsontwerp op het statuut van en toezicht op de kredietinstellingen, Parl.St. Kamer 2014-15, nr.

53K3406/001, 14.

47.

Only time will tell, after the publication and subsequent effectiveness of the New Belgian

Banking Law, whether the separation of the activities of banks by reference to the level

of risk posed to the deposits of the savers is enough to overcome the relationship

between banking and politics in security capitalism that proved so fatal in the last crisis.

2. De lege ferenda

2.1. THE MULTIPLE-INTEREST MODEL OF THE CORPORATION

74. An enhanced alliance of the interests of the corporation with those of the broader

society329 or legally speaking, a form of ‘pluralistic or multiple-interest model of the

corporation’330 appears to be essential for creating conditions in which banks can be

obliged to operate socially usefully. This model, recommended by AWRY, BLAIR and

KERSHAW (inspired by the famous law review article published in 1932 by MERRICK DODD,

JR. on how the natural entity theory of the corporation could provide a theoretical basis

for corporate social responsibility in the U.S.A.331), would temper the legal specialty of

banks functioning under a commercial capitalist company form with legal personality,

which turns out to operate as a powerful social norm that generates significant social

costs (due to the human factor stimulated by greed, i.e. the rationality of the homo

oeconomics, as pointed out by FRANÇOIS and BYTTEBIER and by no means due to fact that

capitalist companies are simply psychopathic creatures332).

75. For a lot of jurisdictions this prerequisite is more or less unproblematic for the

simple reason that all companies are subject to a multiple-interest model of corporate

purpose.333 In Belgium and other countries like the U.K., the cards are dealt differently.

“[Fortunately], recent remarks by a former CEO of the FSA on the subject of banking

329 R.J. SHILLER, Finance and the Good Society, Princeton, Princeton University Press, 2012, 26. 330 The pluralistic of multiple-interest model of the corporation insists that directors ought to be obliged to take

into account the interests of all corporate stakeholders every time they act, without any legal hierarchy to

prioritize one constituency over another. AWRY, BLAIR and KERSHAW argue that given the stark consequences of

the necessity of publicly funded bail-outs, the case for a multiple-interest model in the context of credit-

institutions is compelling. At the very least, they believe, there is a powerful justification in relation to

systematically important institutions for a model that gives equal priority to the interests of customers

(depositors, counterparties, etc.), shareholders and the broader society. 331 E. MERRICK DODD JR., “For Whom are Corporate Managers Trustees?”, Harv.L.Rev. 1932, 1145-1163. 332 A. FRANÇOIS and K. BYTTEBIER, “For-profit or not-for-profit? That’s the question. Profit maximization in

company law: myth or (legal) reality” in L. CORNELIS (ed.), Title unknown at the time of writing this thesis, X, X,

X, X. 333 D. AWRY, W. BLAIR and D. KERSHAW, “Between Law and Markets”, LSE Law, Society and Economy Working

Papers 2012, 38-39.

48.

culture suggest that U.K. regulators are open to the idea of revisiting this issue.”334 The

Belgian Special Commission in charge of the investigation of the financial and banking

crisis (2009) also seems to give the impression to recognize the inevitability of

discussions on the subject matter in more depth335. More importantly, opportunities

already exist in Europe (and beyond) to handle banks differently, if so desired - utilitarian

and philanthropic opportunities which might affect the essential characteristics, nature

and essence of all companies336. The VSO in Belgium, the ‘Community Interest

Company’337 (CIC) in the UK and the ‘Benefit Corporation’338 in the U.S.A. are just a few

examples.

2.2. THE BELGIAN VEHICLE CREATED BY THE LEGISLATOR TO COMBINE PROFIT AND

CARE FOR SOCIETY: THE VSO

76. In Belgium there is the company variety form VSO (providing for an opportunity to

limit the payment of dividends to shareholders). Social concerns can be addressed

through a VSO as its legal specialty is first and foremost the caretaking of a social

purpose as defined in the articles of association, which can be of a private nature339.

Moreover the company interest of a VSO cannot be exclusively equated with the

collective profit interest of the partners or the shareholders because of the collective

profit distribution purpose. The company interest of a VSO i.e. constitutes out of the

334 D. AWRY, W. BLAIR and D. KERSHAW, “Between Law and Markets”, LSE Law, Society and Economy Working

Papers 2012, 39. 335 Hand. Bijzondere Commissie belast met het onderzoek naar de financiële en bankcrisis, 2009-10, 27 april

2009, nr. 52K1643/002, 189. 336 D.B. FLOOR, Tijdelijke handelsvennootschappen, Gent, Larcier, 2007, 68; G. HORSMANS, “La société: notion et

codification” in X, Droit des sociétés: les lois des 7 et 13 avril 1995, Bruxelles, Bruylant, 1995, 10-12. 337 In the U.K. the CIC was introduced in 2004 by the Companies (Audit, Investigations and Community

Enterprise) Act 2004. CICs are a new type of company form in the U.K., to be distinguished from charities

(association without lucrative purpose), for companies limited by shares, companies limited by guarantee which

do not have a share capital and companies limited by guarantee which have a share capital which want to

exploit activities which benefit the community: Companies (Audit, Investigations and Community Enterprise)

Act 2004, s 26; Companies Act 2006, s 6. 338 Across the ocean a new kind of company for a new economy akin the CIC in the U.K. and the VSO in

Belgium is the Benefit Corporation (The Benefit Corporation ought not to be confused with Certified B

Corporations hence I will not use any abbreviation for this American company form. The latter is a private

certification for ‘ordinary’ companies from a ‘nonprofit B Lab’ for having met high standard of social and

environmental performance which results in an access to services and support from the nonprofit B Lab

whereas a Benefit Corporation is a legal status administered by the state) in the U.S.A. (a North American

initiative): D.B. REISER, “Benefit Corporations – A Sustainable Form of Organization?”, Wake Forest L.Rev. 2011,

593. The Benefit Corporation is a commercial company that has “corporate social responsibility injected into its

DNA”: L. TIMMERMAN, J.M. DE JONGH and A.J.P. SCHILD, “The Rise of the Social Enterprise: How Social Enterprises

Are Changing Company Law Worldwide” in S. MULLER, S. ZOURIDIS, M. FRISHMAN and L. KISTEMAKER (eds.), The

Law of the Future and the Future of the Law, Oslo, Torkel Opsahl Academic EPublisher, 2011, 316. It is a

company “set out to use the power of business to solve social and environmental problems”: R. ABRAMOVAY,

“Philanthropy beyond the sectoral approach” in L. BRUNI and S. ZAMAGNI (eds.), Handbook on the Economics of

Reciprocity and Social Enterprise, Cheltenham, Edward Elgar, 2013, 255. 339 A. FRANÇOIS, Het Vennootschapsbelang in het Belgische Vennootschapsrecht, Antwerpen, Intersentia

Rechtswetenschappen, 1999, 674.

49.

sustainable promotion of the social purpose identified in its articles of association. Thus

the company interest is once more linked to the collective interest of the partners or

shareholders, which is not a profit interest in a VSO but an idealistic interest, varying in

accordance with the specified social purpose specified by the partners or shareholders.340

77. The introduction of the VSO341 in 1995 by the law establishing the VSO was a solace

for the emerging ‘social economy’342 in the last decade of the twentieth century or rather

the so-called economy ‘marchande à but social’, considering the Belgian legislator wanted

to meet the needs of enterprises with commercial activities and social purposes instead

of the traditional purpose to enrich the partners343.

78. The VSO is a special application of the company forms with legal personality

mentioned in article 2, § 2 of the Company Code344. It is not a separate company form

but a variety of the latter; it has a transversal nature in other words345. “There is no

limitation to establish a commercial company with a social purpose. Such a commercial

company with a social purpose could for instance be a company with the aim to profitably

exploit a restaurant (= the purchase of provisions with the aim to process these and to

resell them with profit, followed by the actual resale) and the purpose of which consists

out of spending the profit generated from the activities of the restaurant on a social

340 A. FRANÇOIS, Het Vennootschapsbelang in het Belgische Vennootschapsrecht, Antwerpen, Intersentia

Rechtswetenschappen, 1999, 674. 341 Art. 661- 669 Company Code. 342 The social economy is defined by COECKELBERGH as “a creation of value added for clients, shareholders,

management, employees, the whole of society, including the less fortunate”: D. COECKELBERGH, T. BREESCH and

P. VAN MERRIS, Ondernemen met de Vennootschap met Sociaal Oogmerk, Gent, Mys & Breesch, 2001, 215-216

(my own translation). The roots of the social economy can be traced to the labor movement in the 19th century,

the book ‘Nouveau traité de l’économie sociale’ by Charles DUNOYER (who also stressed the cyclicality of the

economy) published in 1830 and the first mutualist and cooperative movements of the 19th and 20th century”:

D. COECKELBERGH, T. BREESCH and P. VAN MERRIS, Ondernemen met de Vennootschap met Sociaal Oogmerk,

Gent, Mys & Breesch, 2001, 23. 343 D. COECKELBERGH, T. BREESCH and P. VAN MERRIS, Ondernemen met de Vennootschap met Sociaal Oogmerk,

Gent, Mys & Breesch, 2001, 19; A. BENOUIT-MOURY and N. THIRION, “Recconnaissance de la personalité juridique

et aperçu des différentes formes sociétaires” in B. TILLEMAN, A. BENOIT-MOURY, O. CAPRASSE and N. THIRION

(eds.), De oprichting van vennootschappen en de opstartfase van ondernemingen, Brugge, die Keure, 47; P.-A.

FORIERS and A. FRANÇOIS, “Een nieuwe kijk op enkele klassieke dichotomieën in het vennootschapsrecht” in

BELGISCH CENTRUM VAN HET VENNOOTSCHAPSRECHT (ed.), De Modernisering van het Vennootschapsrecht, Brussel,

Larcier, 2014, 39. 344 Art. 661 Company Code. Except for the European Company, the European Cooperative Society and the

European Economic Interest Grouping (supra). 345 D. COECKELBERGH, T. BREESCH and P. VAN MERRIS, Ondernemen met de Vennootschap met Sociaal Oogmerk,

Gent, Mys & Breesch, 2001, 24; D.B. FLOOR, Tijdelijke handelsvennootschappen, Gent, Larcier, 2007, 3; M.

COIPEL, “Introduction générale et présentation des diverses forms de groupements” in M. COIPEL, Droit des

sociétés commerciales, boek 2, Diegem, Kluwer, 1998, 74; H. DE MUYNCK, Vennootschapsrecht in België, Gent,

Academia Press, 2012, 191-193; P.-A. FORIERS and A. FRANÇOIS, “Een nieuwe kijk op enkele klassieke

dichotomieën in het vennootschapsrecht” in BELGISCH CENTRUM VAN HET VENNOOTSCHAPSRECHT (ed.), De

Modernisering van het Vennootschapsrecht, Brussel, Larcier, 2014, 40.

50.

purpose, like the financing of activities of an association without lucrative purpose [(an

external social purpose)].”346 The same principle can therefore be applied to banks too.

79. The most important requisites with which the VSO has to comply according to the

Company Code, relevant for my thesis, can be summarized as following: firstly the

articles of association need to state that the partners or shareholders are not pursuing

profit or that they only have a limited profit distribution purpose (the company’s profit

distribution profit is limited or absent347). In case of a limited profit distribution purpose

the articles of association need to state that the distributed profit (the shares) cannot

exceed the interest rate set by a Royal Decree of 8 January 1962, applied to the

effectively deposited amount of shares (anno 2014 this interest rate amount to 6%348)349.

The articles of association also need to accurately describe the social purpose on which

the profits will be dispensed and the activities that the company will exploit to obtain the

desired profit350. The Company Code does not exactly determine what this social purpose

is (article 661, 2° of the Company Code only negatively defines the social purpose as not

providing profit to the partners351). On the whole it can be assumed to imply the

enrichment of the community, of the society as a whole instead of the partners or

shareholders352. A special report about the achievement of this special purpose has to be

attached to the annual report of the company353.

346 K. BYTTEBIER, “Onderzoek naar de criteria ter afbakening van de vennootschappen met een in hoofde van de

vennoten aanwezig verrijkingsoogmerk van de vennootschappen met een sociaal oogmerk en van de

commerciële vennootschappen van de burgelijke vennootschappen” in K. BERNAUW, P. COLLE, M. DAMBRE and I.

DEMUYNCK (eds.), Liber amicorum Yvette Merchiers, Brugge, die Keure 2001, 415 (my own translation). 347 A. FRANÇOIS, Het Vennootschapsbelang in het Belgische Vennootschapsrecht, Antwerpen, Intersentia

Rechtswetenschappen, 1999, 205. 348 Art. 1, § 2, 6° KB 8 januari 1962 tot vaststelling van de voorwaarden tot erkenning van de nationale

groeperingen van coöperative vennootschappen en van de coöperative vennootschappen, BS 19 januari 1962,

398. 349 Art. 661, 5° Comany Code; KB 8 januari 1962 tot vaststelling van de voorwaarden tot erkenning van de

nationale groeperingen van coöperative vennootschappen en van de coöperative vennootschappen, BS 19

januari 1962, 398. 350 D. COECKELBERGH, T. BREESCH and P. VAN MERRIS, Ondernemen met de Vennootschap met Sociaal Oogmerk,

Gent, Mys & Breesch, 2001, 36. 351 D. COECKELBERGH, T. BREESCH and P. VAN MERRIS, Ondernemen met de Vennootschap met Sociaal Oogmerk,

Gent, Mys & Breesch, 2001, 37; BYTTEBIER, “Onderzoek naar de criteria ter afbakening van de vennootschappen

met een in hoofde van de vennoten aanwezig verrijkingsoogmerk van de vennootschappen met een sociaal

oogmerk en van de commerciële vennootschappen van de burgelijke vennootschappen” in K. BERNAUW, P.

COLLE, M. DAMBRE and I. DEMUYNCK (eds.), Liber amicorum Yvette Merchiers, Brugge, die Keure 2001, 391; P.-A.

FORIERS and A. FRANÇOIS, “Een nieuwe kijk op enkele klassieke dichotomieën in het vennootschapsrecht” in

BELGISCH CENTRUM VAN HET VENNOOTSCHAPSRECHT (ed.), De Modernisering van het Vennootschapsrecht, Brussel,

Larcier, 2014, 41. 352 D. COECKELBERGH, T. BREESCH and P. VAN MERRIS, Ondernemen met de Vennootschap met Sociaal Oogmerk,

Gent, Mys & Breesch, 2001, 37-39; E. DIRIX, R. STEENNOT and H. VANHEES, Handels- en Economisch Recht in

Hoofdlijnen, Antwerpen, Intersentia, 2011, 43. 353 Art. 661, 5° and 9° Company Code.

51.

Secondly the articles of association of a VSO need to mention that the assets remaining

after liquidation of the company will be allocated as close as possible in accordance to the

social purpose of the liquidated company354 (this obligation is an example of the intention

of the legislator to avoid that the wealth of the VSO would go to the partners355). Thirdly,

after every mentioning of the legal form of the company, the words ‘with a social

purpose’ need to be added356.

Other noteworthy features of a VSO are the fact that in case the company does not

comply with the requirements of article 661 of the Company Code anymore, the existing

reserves cannot be paid out under any form357 and that the court can dissolve the

company following a claim of any partner (or shareholder), a third party with an interest

or the public prosecutor (the representative of the public interest) if the company in

question alleges to be a VSO without mentioning all the provisions in its articles of

association, required by article 661 of the Company Code, or acts against these

provisions in practice358.

80. Furthermore the VSO needs to comply with the rules of the Company Code of its

company form. A company limited by shares with a social purpose for instance would

need to abide by the articles in the Company Code applicable to all companies, the

articles applicable to all companies with legal personality, the articles 437 to 653 and the

articles 661 to 668.

354 Art. 661, 9° Company Code. 355 A. FRANÇOIS, Het Vennootschapsbelang in het Belgische Vennootschapsrecht, Antwerpen, Intersentia

Rechtswetenschappen, 1999, 205. 356 Art. 662 Company Code. 357 Art. 663, section 1 Company Code. 358 Art. 667 Company Code; P.-A. FORIERS and A. FRANÇOIS, “Een nieuwe kijk op enkele klassieke dichotomieën

in het vennootschapsrecht” in Belgisch Centrum van het vennootschapsrecht (ed.), De Modernisering van het

Vennootschapsrecht, Brussel, Larcier, 2014, 43.

52.

53.

PART III: SOCIALLY USEFUL BANKS

1. Support to bring banks back to their ‘socially useful’

roots

1.1. THE FADING SOCIALLY USEFUL ORIGINS OF BANKS

81. Banks participate in the wealth creation process by the provision of credit to the

real economy, stimulating economic growth and human welfare (economic development).

Due to deregulation the banking sector experienced enormous growth, innovation and an

increase in intricacy over the past couple of decades, overlooking its relationship to

society.359 ‘Financial innovation’360 moreover permitted banks to use too much debt and

to create too much credit, thereby fuelling “asset bubbles that expose the rest of the

economy to too much risk”361, enabling banks to pay its employees and investors too

much (“because they are generally paid for appearing to add value, even if the value

later evaporates as the bubble bursts”362) and “absorbing more in the way of social and

economic resources than it is producing”363

1.2. POLITICAL SUPPORT

82. After the financial and economic crisis there seems to be a growing consensus to

bring banks back to their human welfare roots.364 Slowly acknowledgment arises about

the undesirability of an overcomplicated and oversized banking industry that does not

359 A. TURNER et al., The Future of Finance: The LSE Report, 9-14 and 42; A. TURNER, “Credit creation and social

optimality”, IRFA 2012, 145. 360 According to Lord Adair TUNER many regulators were influenced by the Arrow Debreu theorem and were

therefore inclined to “accept that if innovation created new markets and products that must be beneficial and

that if regulation stymied innovation that must be bad”: A. TURNER et al., The Future of Finance: The LSE

Report, 33; M.M. BLAIR, “Financial Innovation, Leverage, Bubbles and the Distribution of Income”, Rev.Banking

& Fin.L. 2010, 225-226. Now the realization has dwelt upon many that “any idea that that means that size is an

objective, even if the activities are likely to harm global and UK economic stability, is absurd”: Adair TURNER.

2009. “Mansion House” speech, City Banquet, London, 22 September 2009. 361 M.M. BLAIR, “Financial Innovation, Leverage, Bubbles and the Distribution of Income”, Rev.Banking & Fin.L.

2010, 225. 362 M.M. BLAIR, “Financial Innovation, Leverage, Bubbles and the Distribution of Income”, Rev.Banking & Fin.L.

2010, 225. 363 M.M. BLAIR, “Financial Innovation, Leverage, Bubbles and the Distribution of Income”, Rev.Banking & Fin.L.

2010, 227. 364 A. BAKAS and R. PEVERELLI, The Future of Finance, Oxford, Infinite Ideas, 2009, 287-288; R.J. SHILLER,

Finance and the Good Society, New Jersey, Princeton University Press, 2012, 7; P. JORION, Why Stewardship of

Finance?, Antwerpen, Intersentia, 2012, 3; I. MACNEIL and J. O'BRIEN, “Introduction: The Future of Financial

Regulation” in I. MACNEIL and J. O'BRIEN (eds.), The future of financial regulation, Oxford, Hart Publishing, 2010,

5; Locally, the VUB dedicated an entire chair to the problem attended by figures like the Belgian King Philippe

and his spouse.

54.

deliver social value and does not increase the size of the entire “economic cake”365. This

entails the return of banks to their original raison d’être as stewards of the society, by

eradicating their possibilities to chase short-term profits via the introduction of “complex

products of no real use to humanity”366.

83. Avant-garde politicians, financial regulators and ‘bankers’367 already spoke of

financial activities and instruments in terms of ‘Quaker banking’368 and of ‘social

usefulness’369 without any specifications or exact meanings. Antony Jenkins, chief

executive of Barclays Bank Plc, for instance, ordered all his staff to undergo an

interrogation on moral values370; additionally Barclays’ annual report of 2013371 entitled

‘Building the Go-to Bank’ aspires to good corporate citizenship by mentioning integrity

values, a new code of conduct of ethical behavior for Barclays employees (the ‘Barclays

Way’) and the importance of improving the impact of the bank on society (‘stewardship

value’)372; financial education charities like the Personal Finance Education Group (PFEG)

in the U.K. are being integrated into government programmes to teach children about

saving373; the Institute for New Economic Thinking has dedicated an entire conference to

the question of how we can ‘create a financial system that is socially useful?’ in 2012374;

a report was prepared by a Special Representative of the Secretary-General of the United

Nations (on request of the Human Rights Council of the United Nations) where special

attention was paid to “’the corporate responsibility to respect all human rights and to

provide concrete guidance to business and other stakeholder’”375; the European

Commission launched a new definition of corporate social responsibility (CSR) that claims

365 Adair TURNER. 2013. “Socially useful financial instruments and activities” interview, 12 February 2013

(Appendix I). 366 Stephen GREEN. 2009. “Banking in the process of chance Conference” speech, European Central Bank,

Frankfurt, 8 September 2009. 367 Because of the close link between banking and politics that was described in the first part of this thesis,

initiatives from the banking industry are also mentioned in this chapter. 368 The Quaker movement (a protestant splinter group, also known as the ‘Religious Society of Friends’)

famously brought about the existence of the two largest Banks in the UK, Lloyds Bank Plc and Barclays Bank

Plc. “Between them, these banks have almost 600 years of history. For most of that period, no-one questioned

their social usefulness. They extended loans to businesses and helped families buy homes [(whilst sponsoring

projects like the building of bridges, the building of hospitals, prison reform, etc.)]. Nationally and regionally

they were part of the social fabric”: Andrew HALDANE. 2012. “Occupy Economics, ‘Socially useful banking’”

speech, Bank of England, London, 29 October 2009. 369 Adair TURNER. 2009. “Mansion House” speech, City Banquet, London, 22 September 2009. 370 S. DUKE. 2013. “It’ll be torture for Barclays bosses”, The Sunday Times, London, 10 March 2013, 12. 371 Barclays PLC, Annual Report 2013, 5-8. 372 Recent fraudulent practices including the miss-selling of banking products and the avoidance of societal

responsibilities raise suspicion about the integrity of such targets: Financial Services Authority (hereinafter

FSA), final notice to Barclays Bank Plc, 27 June 2012, nr. 122702, www.fsa.gov.uk/static/pubs/final/barclays-

jun12.pdf. 373http://citywire.co.uk/new-model-adviser/pfeg-and-hsbc-team-up-for-financial-teacher-training-tool/a705248. 374 http://ineteconomics.org/conference/berlin/dirk-bezemer-creating-socially-useful-financial-system-35. 375 W. VAN GERVEN and S. LIERMAN, Beginselen van het Belgisch Privaatrecht, I Algemeen deel, Veertig jaar later,

Privaat- en Publiekrecht in een Meerlaagd Kader van Regelgeving, Rechtsvorming en Regeltoepassing,

Mechelen, Kluwer, 2010, 488.

55.

that all enterprises should be responsible for their impacts on society376; furthermore,

FairFin, financially supported by the European Union Project Facing Finance, organises

debates dedicated to the subject of ‘Bank to Basics’377.

84. The dogmatic aims of these vague legally-unconverted ideas are the prevention of

systemic risk, recessions, unemployment, cuts in public services along with higher taxes

as consequences of “a crisis cooked up in trading rooms where not just a few but many

people earned annual bonuses equal to a lifetime’s earnings of some of those now

suffering the consequences.”378

1.2.1. Justification of the ‘socially useful’ initiatives in the banking sector

85. Regardless of the noble ring of these initiatives, advocate Lord Adair TURNER

remarks how critics “have challenged whether we can ever make such judgements about

the social usefulness of [any] economic activity”379. It should not come as a surprise that

the forefront of the protest was lead by the City clique380, generally known for

safeguarding the “efficient market hypothesis”381 and dedicated followers of VON HAYEK

and FRIEDMAN382. At first glance, a very valid concern in a free market system. However

one cannot forget that the banking sector ‘slightly’ varies from other sectors like the

fashion or media industry, which also offer products and services that people don’t

necessarily require.

“The products of the fashion industry are consumer products, consumed directly by

individuals, and in a free and rich society, we should accept and indeed relish the fact

that consumer choice is in part driven by fancy and caprice, by desire for luxury and style

376 COM(11)681 final [Commission document nr. 681 of 2011, final version]. 377 www.fairfin.be/actueel/nieuws/2013/10/bank-basics-ii-bankiers-aan-het-roer-democratie-overboord. 378 Adair TURNER. 2009. “Mansion House” speech, City Banquet, London, 22 September 2009. 379 Adair TURNER. 2009. “Mansion House” speech, City Banquet, London, 22 September 2009. 380 A. BRUMMER. 2009. “Enter a daredevil”, The New Statesman, London, 14 September 2009, 22. Lord Adair

TURNER himself admits in my interview that most critique came from the City of London: Adair TURNER. 2013.

“Socially useful financial instruments and activities” interview, 12 February 2013 (Appendix I). 381 E.F. FAMA, “Efficient Capital Markets: a Review of Theory and Empirical Work”, JF 1970, 413-416. 382 “A most prominent stream in the economic and financial community has openly proclaimed that any concern

of a ‘social’ nature is akin to ‘totalitarianism’, a word often used as a euphemism for ‘communism’”: P. JORION,

Why Stewardship of Finance?, Antwerpen, Intersentia, 2012, 4. The notion that the “stewards of great

concentrations of economic power” should consider social and economic effects of their business policies was

disputed by FRIEDMAN in his article ‘The Social Responsibility of Business is to increase its Profits’ published in

1970 in the New York Times Magazine. According to FRIEDMAN any economic activity, especially “socially

responsible corporate activity [constituted] an illegitimate use of shareholder property; managers who acted in

this way in effect were imposing a tax on shareholders and deciding to what worthy purposes the proceeds

should be put”: D. MILLON, “Theories of the Corporation”, Duke.L.J. 1990, 227. Such ‘unconstitutional taking’

was put down as ‘socialism’: K. GREENFIELD, “From Metaphor to Reality in Corporate Law”, Stanford Agora 2000,

60.

56.

and indulgence, not by need. Products and services chosen directly by customers don’t

need to prove that they are useful; the fact that consumers choose them is enough. But

nobody gets up on a Saturday morning and says ‘I know it’s indulgent, but I think I’ll go

out and buy one of those lovely new CDO squareds’. And the fashion, media, or arts

industries cannot create financial instability and cause economic recessions383. [Banking]

is an intermediate service, the plumbing of the economy”384, since it “doesn’t actually

produce automobiles, clothing, or machinery, but merely serves as a [liaison] and

organizer of those production resources”385.

Moreover, “money oils the wheels of society, no matter what. That realizations implies a

responsibility”386, that simply does not rest on any other sector. Banks are also different

because they are highly leveraged, require a banking license (authorisation387) to

operate, borrow more than any other company (debt funded more than 97 percent of the

assets of some large European Banks388), have robustly regulated internal governance389,

can take on risk very quickly, are subject to prudential supervision, remunerate their

executive directors and managers very highly390 (several attempts have been made since

the crisis to put a hold on this occurrence391), have a monopoly of taking deposits or

other repayable funds from the public392, possess the ability to unilaterally change

contracts with clients after their completions393, are open to liquidity risk in the form of

bank runs because of maturity mismatch and are very tightly linked with politics (banks

can help politicians achieve employment and other objective whereas politicians can help

383 In 1837 President of the United States, Andrew Jackson, reportedly expressed his anger at the power of

banks to bring the entire social organization down: A. DOCHERTY and F. VIORT, Better Banking. Understanding

and Addressing the Failures in Risk Management, Governance and Regulation, Chichester, Wiley, 2014, 35. 384 Adair TURNER. 2009. “Mansion House” speech, City Banquet, London, 22 September 2009.

385 A. BAKAS and R. PEVERELLI, The Future of Finance, Oxford, Infinite Ideas, 2009, 288. 386 ibid. 387 Art. 8 Banking Directive; Art. 7 Belgian Banking Law; Art. 7 New Belgian Banking Law; Core Principle 4 of

Basel Committee on Banking Supervision (hereinafter: BCBS), core principles for effective banking supervision,

14 September 2012, www.bis.org/publ/bcbs230.pdf; D. FOLKERTS-LANDAU and C.J. LINDGREN, Toward a

Framework for Financial Stability, Washington D.C., 1998, 32. 388 A. ADMATI and M. HELLWIG, The Banker’s New Clothes, Princeton, Princeton University Press, 2013, 7. 389 K. MACOURS, “De interne organisatie van banken” in EVBFR – BELGIUM, 20 jaar Bankwet, Antwerp,

Intersentia, 2013, 40. 390 High remuneration of bankers is part of the story of security capitalism: R.J. SHILLER, Finance and the Good

Society, Princeton, Princeton University Press, 2012, 26. 391 Art. 450 Banking Regulation; Art. 92-96 Banking Directive; art. 20, § 2 Belgian Banking Law; Art. 21, § 1,

6° New Belgian Banking Law.

MACOURS points out that all legislation concerning remuneration should be supplemented with the guidelines on

remuneration policies and practices by the Committee of European Banking Supervisors (2010): K. MACOURS,

“De interne organisatie van banken” in EVBFR – BELGIUM, 20 jaar Bankwet, Antwerp, Intersentia, 2013, 45. 392 Art. 9 Banking Directive. 393 R. SMITS, S. STIJNS and K. VANDERSCHOT, “Algemene Bankvoorwaarden” in B. TILLEMAN and B. DU LAING (eds.),

Bankcontracten, Brugge, die Keure, 2003, 21.

57.

banks in return394, a more concrete example of this in Belgium is the possibility for the

Belgian government to intervene in the management of a bank since 2010395).

First and foremost however is the fact that in order to avoid the collapse of the entire

financial system due to a snowball effect, banks will get help from central banks: “We

need to recognize that financial institutions, especially a bank is a different type of

company than a normal company (like a car company for instance). This is due to the

fact that when a car company is in trouble it does not bring down a financial system or

an entire economy, it is rather a problem for the company’s share holders and

executives. This simple example will illustrate that: when a car company in the car

industry goes bankrupt, its competitors are pleased; they celebrate as life becomes

easier. In the case of bankruptcy of a bank the competitors however are terrified because

of the contagion effect. Boards of banks should recognise that bankruptcy of a bank or

when a bank is simply not doing well brings a downside for society.”396

86. The banking sector hence, unlike other sectors, will be rescued by the taxpayer

(moral hazard due to explicit deposit guarantees and ‘too systemic to fail’ implicit

guarantees), creating a mechanism whereby “profits are privatized and losses are

socialized”397 as pointed out by Henry Kissinger. Even the Belgian Special Commission in

charge of the investigation of the financial and banking crisis (2009) acknowledges that

banks are particularly special enterprises as they ‘should’ give priority to public interest,

the interests of depositors and borrowers398. These realities remark a ground-breaking

movement in the hoary debate concerning in whose interests the bank should be run.

1.3. SUPPORT FROM SOCIETY

87. Before any legal proposal it is very important to know whether there is any social

support for the idea behind the instrument; whether it corresponds with the sense of

justice of the recipients (social compliance). New legislation can hardly go against what

394 M. BECHT, P. BOLTON and A. ROELL, “Why bank governance is different”, Oxf.Rev.Econ.Pol 2011, 438-446. 395 K. MACOURS, “De interne organisatie van banken” in EVBFR – BELGIUM, 20 jaar Bankwet, Antwerp,

Intersentia, 2013, 42; art. 5 wet 2 juni 2010 tot uitbreiding van de herstelmaatregelen voor de ondernemingen

uit de bank- en financiële sector, BS 14 juni 2010, 37.064. 396 Adair TURNER. 2013. “Socially useful financial instruments and activities” interview, 12 February 2013

(Appendix I). For the fact that banks are different from any other company can also be accounted for by the

fact that banks governance is considered different from any regular corporate governance. The majority of the

doctrine seems to agree with this: C. VAN DER ELST, “Corporate Governance in banks: mind the differences?”

PowerPoint Presentation. 397 A. BAKAS and R. PEVERELLI, The Future of Finance, Oxford, Infinite Ideas, 2009, 47; P. JORION, Why

Stewardship of Finance?, Antwerpen, Intersentia, 2012, 16. 398 Hand. Bijzondere Commissie belast met het onderzoek naar de financiële en bankcrisis, 2009-10, 27 april

2009, nr. 52K1643/002, 161-162.

58.

lives in society since willingness needs to exist to comply with the rules,399 just as

existing legal conceptions which do not reflect the awareness of justice of a society can

hardly remain without alteration400.

1.3.1. Public opinion as a material source of law

88. The unprohibited access to the legal specialty401 (and the related narrow

interpretation of company interest) of capitalist companies for banks – the economic

organizers of society – and rules of conduct, whether or not incorporated in law texts,

ignoring society as a whole, unquestionably do not hold anymore as self-evident

truths402. Public opinion, which ultimately makes law as it is a primary material source of

the law403 by embodying beliefs about what is legitimate404 (ultimately law is a social

product given that, as GORLÉ pointed out, it is a set of social choices and acts that are

considered of vital importance by society and which are recognized by the

government405), has made and is today making substantial strides in the direction of a

view of banks as economic institutions which have a social service as well as a profit-

making function even if this implies a curtailment of the rights of its shareholders and

their party autonomy due to the differing nature of banks in comparison to any other

company406.

89. Global protest movements like ‘Occupy Wall Street’407 and their civil disobedience

and the more serene ‘national petitions’408 have made it more than clear that because

399 M. VAN DAMME, Elementen van legisprudentie. Bedenkingen bij het moderne wetgevingsbedrijf, Gent, Larcier,

33. 400 T. STERNBER, Die Methode: Aus: Allgemeine Rechtslehre, Volume I, Leipzig, Walter de Gruyter, 1904, 191-

194. 401 A rule of public order (supra). 402 Flawed arguments impacting policy and failures to design and enforce effective laws and regulations in the

public interest also need to come to an immediate halt as it comes down to an abuse of control of other

people’s money taking into consideration that “politicians, regulators, supervisors, and even central bankers are

(...) in control of people’s money. Only public pressure can solve this governance problem.”: A. ADMATI and M.

HELLWIG, The Bankers’ New Clothes. What’s wrong with banking and What to Do about It, Princeton, Princeton

University Press, 2013, 217. 403 The sources of the law, classified into material and formal sources of the law, ascertain what the law is.

Material sources of the law explain the contents of a rule where formal sources of the law have to do with the

way in which law is established or formed. The material sources of the law can in turn be classified into mainly

social sources, historical sources, and philosophical sources. The social sources of the law include all social

factors that have determined the content of the law like socio-economic relations and policies of political

parties. GORLÉ has indicated that social customs should be considered as the primary legal phenomenon: P. DE

VROEDE and J. GORUS, Inleiding tot het recht, Mechelen, Kluwer, 2007, 153. 404 The beliefs about what is legitimate embodied in the law in turn influence the way people behave: D. MILLON,

“Theories of the Corporation”, Duke. L.J. 1990, 243; L.H. TRIBE, “The Curvature of Constitutional Space: What

Lawyers Can Learn from Modern Physics”, Harv.L.Rev. 1989, 1-39. 405 F. GORLÉ, “Grondslag van de rechtsgeschiedenis”, RW 1981, 862. 406 E. MERRICK DODD JR., “For Whom are Corporate Managers Trustees?”, Harv.L.Rev. 1932, 1145-1146. 407 N. CHOMSKY, Occupy, London, Penguin Books, 2012, 53-69. In Brussels there was a large demonstration on

the 15th of October 2012. Leuven, Ghent and Antwerp are other examples of Belgian cities where Occupy

59.

financial stability is regarded as a “public good”409 and because of bank’s central role in

its preservation, the bank (assuming a commercial company form, at least in Belgium)

should not only be run advantageously for the traditional stakeholders (the shareholders,

employees and clients) however also for society’s prosperity410.

Since the failures of a bank affect the whole economy and not just its shareholders,

“’bank boards and managements’411 need to [reconceptualise the existential purpose of a

bank and need to] strike a different balance between risk and return than is appropriate

in other sectors of the economy”412: “Public intervention cost taxpayers substantial sums

of money and even put some Member States’ public finance at risk. Between October

2008 and October 2011, the Commission approved €4.5 trillion (equivalent to 37% of EU

GDP) in state aid measures to financial institutions (...) Budgetary commitments and

expenditure on this scale are not sustainable from a fiscal point of view, and impose a

heavy burden on present and future generations. Moreover the crisis, which started in

the financial sector, pushed the EU economy into severe recession, with the EU’s GDP

contracting by 4,5% or €0,7 trillion in 2009.”413

90. Accordingly a ‘renewed’ role for banks is claimed. A role that should not only exist

as an ethical standard that cannot be enforced however as a legal rule whose compliance

is legally mandatory and enforceable414. Members of society and “customers have a right

to demand that a concern so large shall not only do its business honestly and properly,

demonstrators were active. However Occupy Wall Street is not tied to any particular country as it operates

internationally. 408 One example of a national petition is the petition to Belgian Prime Minister Di Rupo and Minister of Finance

Geens to stop banks from speculating with society’s money. The goal of the petition is to achieve an abolition of

universal banking through a law akin the American Glass Steagall Act of 1933. The petition can be signed

online: www.bankensplitsen.be/. 409 D. AWREY, W. BLAIR and D. KERSHAW, “Between Law and Markets”, LSE Law, Society and Economy Working

Papers 2012, 30. 410 K. MACOURS, “De interne organisatie van banken” in EVBFR – BELGIUM, 20 jaar Bankwet, Antwerp,

Intersentia, 2013, 39. 411 Especially boards and managements of banks that finance themselves with deposits raised from the public

need to organize themselves in a way that reduces their risk profile to acceptable proportions or at least to

proportions avoiding new rescue operations from government: J. CERFONTAINE, “De instelling ‘bank’” in EVBFR –

BELGIUM, 20 jaar Bankwet, Antwerp, Intersentia, 2013, 24. 412 Adair TURNER. 2009. “Mansion House” speech, City Banquet, London, 22 September 2009. 413 A. DOCHERTY and F. VIORT, Better Banking. Understanding and Addressing the Failures in Risk Management,

Governance and Regulation, Chichester, Wiley, 2014, 34. But the financial and economic crises had far more

severe consequences than an expensive price tag in the form of long-term debt obligations for taxpayers for

decades to come. Lengthening dole queues, rapidly diminished life chances (particularly for some older workers

who may struggle to find significant employment again), repossessed homes and substantially increased

demand for social housing, rising economic tribalism and xenophobia are other examples: D. GRAYSON,

“Foreword” in H. SPITZECK, M. PRISON and C. DIERKSMEIER (eds.), Banking with Integrity. The Winners of the

Financial Crisis?, Hampshire, Palgrave Macmillan, 2012, x. 414 K. BYTTEBIER, “Gedragsregelen bij financiлle transacties: huidige praktijk en perspectieven” in M. TISON, C.

Van ACKER and J. CERFONTAINE (eds.), Financiële regulering op zoek naar nieuwe evenwichten. Volume II.

Financiële markten, financiële transacties, prudentieel recht, Antwerpen, Intersentia, 2003, 8.

60.

but, further, that it shall meet its public obligations and perform its public duties – in a

word, vast as it is, that it should be a good citizen, administering wisely and fairly in the

interest of all”415 and accepting that “with great power comes quasi-public

responsibility”416.

2. The role of the law in obliging banks to be socially

useful

2.1. LAW AS A MEANS TO SOCIAL ENDS

91. Law is the compilation of norms and rules of conduct that try to regulate the

outward behaviour of natural and legal persons. Law is a social phenomenon. Legal rules

come into existence in a certain society at a certain moment in time, reflecting the

fundaments of that society (legal rules are bound to a certain political and social system

and evolve with the developments of its society).417

92. Due to the perfectibility of man and mankind law cannot be static. Values of

societies change and are dynamic. These changes should be followed by the law.418 In

general it can therefore be said that notwithstanding the differing content of legal rules,

at the outset all laws are ‘made’419 with the intention to benefit and organize society as a

whole by facilitating certain carefully described ways of conduct and banning others that

lead to the (economical, moral, social, etc.) collapse of a given society420: “the

beginnings of [any society] are in an ordering which serves to make men’s living together

in a reasonable degree of harmony possible.”421

93. “Law also provides the central conceptual apparatus of property rights, contract,

and [legal persons] which plays the role of (...) constituting a coherent [structure] for the

415

E. MERRICK DODD JR., “For Whom are Corporate Managers Trustees?”, Harv.L.Rev. 1932, 1154. 416 D. AWREY, W. BLAIR and D. KERSHAW, “Between Law and Markets”, LSE Law, Society and Economy Working

Papers 2012, 38. 417 G.L. BALLON, K. GEENS, J. STUYCK and E. TERRYN, Inleiding tot het economisch recht, Mechelen, Kluwer, 2010,

5. 418 K. BERNAUW, P. COLLE, M. DAMBRE and I. DEMUYNCK, “Hommage” in K. BERNAUW, P. COLLE, M. DAMBRE and I.

DEMUYNCK (eds.), Liber amicoricum Yvette Merchiers, Brugge, die Keure, 2001, ix. 419 “To one who thinks of society as recognizing interests and creating rights to secure them, law is very likely

to be something made rather than found.”: R. POUND, “The Scope and Purpose of Sociological Jurisprudence

[Continued]”, Harv.L.Rev. 1911, 144. 420 P. DE VROEDE and J. GORUS, Inleiding tot het recht, Mechelen, Kluwer, 2007, 14. 421 R. POUND, “The Case for Law”, Val.U.L.Rev. 1967, 201; K. BERNAUW, P. COLLE, M. DAMBRE and I. DEMUYNCK,

“Hommage” in K. BERNAUW, P. COLLE, M. DAMBRE and I. DEMUYNCK (eds.), Liber amicoricum Yvette Merchiers,

Brugge, die Keure, 2001, ix.

61.

coherent components of the ideological discourses of the economy”422. It is a vital

mechanism for national growth, creating incentives for people to behave in a growth-

enhancing manner i.e. harnessing individual self-interest to serve the public good,

encouraging people to treat society with respect (do good) in tandem to doing well

(making profit)423. Law, understood in this context is not only a set of rules confirming

norms, a network of “reciprocal obligations”424 whilst an instrument of “a means towards

social ends”425, securing interests which it recognizes (“the end of law exists for the

furthering of civilization through the protection of the interests”426)427.

94. This is especially true for the current point in time, now that the legislator evolved

from making legislation that registers and codifies existing opnio juris within society in

order to be in harmony with the changing social conditions (codifying legislation428)

towards a modifying power (modifying legislation based on a policy), directing society

towards a certain outcome, over the last century429: “that the state must follow, and not

lead the character and progress of citizen”430 is a statement of the past, relevant during

the life of ROUSSEAU however entirely misplaced in a 21st century context dominated by

“social engineering”431 (a consequence of this evolution is the demise of the ethical

422 A. HUNT, “Marxist theory of law” in D. PATTERSON (ed.), A Companion to Philosophy of Law and Legal Theory,

Oxford, Blackwell Publishers, 1999, 363. 423 T.S. ULEN, “The Role of Law in Economic Growth and Development” in M. FAURE and J. SMITS (eds.), Does

Law Matter? On Law and Economic Growth, Cambridge, Intersentia, 2012, 202. 424 B. MALINOWKSI, Crime and Custom in Savage Society, New York, Harcourt, Brace & Company Inc., 1926, 25. 425 R. POUND, “The Scope and Purpose of Sociological Jurisprudence [Continued]”, Harv.L.Rev. 1911, 146. 426 J.A. GARDNER, “The Sociological Jurisprudence of Roscoe Pound (Part 1)”, Vill.L.Rev. 1961, 12. 427 In this aspect law and finance are very similar. “At its broadest level, finance is the science of goal

architecture – of the structuring of the economic arrangements necessary to achieve a set of goals and of the

stewardship of the assets needed for that achievement. The goals may be those of households, small

businesses, corporations, civic institutions, governments, and of society itself. (...) Finance does not embody a

goal. Finance is not about ‘making money’ per se. It is a ‘functional’ science in that it exists to support other

goals – those of society.”: R.J. SHILLER, Finance and the Good Society, Princeton, Princeton University Press,

2012, 7. 428 POUND and VON JHERING emphasize this aspect of the law. VON JHERING more specifically believed law to

secure the conditions of social life which could be described as the physical and ideal values relative to a time

and a place. GARDNER points out that this vision can also be contributed to MONTESQUIEU since in his ‘L’esprit des

Lois’, “he expounded the thesis that a system of law is a living growth and development interrelated with the

physical and societal environment”: J.A. GARDNER, “The Sociological Jurisprudence of Roscoe Pound (Part 1)”,

Vill.L.Rev. 1961, 2. 429 H. COREMANS and M. VAN DAMME, Beginselen van wetgevingstechniek en behoorlijke regelgeving, Brugge, die

Keure, 2001, 6; T. KOOPMANS, “De rol van de wetgever”, in X, Honderd jaar rechtsleven, Zwolle, Tjeenk Willink,

1970, 221-235; Hand. Bijzondere Commissie belast met het onderzoek naar de financiële en bankcrisis, 2009-

10, 27 april 2009, nr. 52K1643/002, 186. 430 R.W. EMERSON, “Essay on Politics” in X, Essays by Ralph Waldo Emerson, Pennsylvania, The Electronic Series

Classics, 2014, 289. 431 M. VAN DAMME, Elementen van legisprudentie. Bedenkingen bij het moderne wetgevingsbedrijf, Gent, Larcier,

20; R. POUND, Social Control Through Law, New Jersey, Transaction Publishers, 2002, 41; K. ZWEIGERT and H.

KÖTZ, An Introduction to Comparative Law, Oxford, Oxford University Press, 1998, 45.

62.

dimension in legislation as the latter becomes more technical; a tendency only

strengthened by European Community Law432).

95. The desire to implement change in society therefore requires a modification in the

law (“law functions to sustain just as it helps to break down an existing order”433).

Consequently it is an instrument of influence434 and of “social control”435 to achieve

societal goals rendered important at a certain time and place. This functionalist approach

of law is both its promise and Achilles heel436 since the interests and societal goals

identified can result in law serving only a powerful minority in society at the cost of

society as a whole (certain rules can perform functions for “certain members for society ,

while being dysfunctional for society at large”437).

2.2. THE ROLE OF THE LEGISLATOR IN THE IDENTIFICATION OF THE ‘RIGHT’

INTERESTS

96. For law to fulfil its promise, the ‘right’ interests need identifying. According to POUND

these interests secured by law that determine the conduit of social, economic and

financial development can be classified into 'individual, public and social interests438. This

classification is necessary because as the saying goes, we all want the earth. What

results in conflicting interests in any particular case as there is a myriad of us and only

one earth. In such circumstances one needs to know which interest must prevail.

Preferably, the solution is the one which will allow the law to give the greatest possible

satisfaction to the social needs, for both stability and progress, in accordance with the

aim of the law (a harmonious society).439

97. In this fashion the interests might be considered as a hierarchy where POUND

believes the social interest to triumph when one weighs the social interest and the

432 M. VAN DAMME, Elementen van legisprudentie. Bedenkingen bij het moderne wetgevingsbedrijf, Gent, Larcier,

129; J.N. SHKLAR, Legalism, Law, Morals and Political Trials, Cambridge, Harvard University Press, 1964, 1. 433 P. ZUMBANSEN, “The Future of Legal Theory” in S. MULLER, S. ZOURIDIS, M. FRISHMAN and L. KISTEMAKER (eds.),

The Law of the Future and the Future of the Law, Oslo, Torkel Opsahl Academic EPublisher, 2011, 333. 434 In legal doctrine this is often referred to as the instrumental policy function of the law: H. COREMANS and M.

VAN DAMME, Beginselen van wetgevingstechniek en behoorlijke regelgeving, Brugge, die Keure, 2001, 6. 435 J.A. GARDNER, “The Sociological Jurisprudence of Roscoe Pound (Part 1)”, Vill.L.Rev. 1961, 1. POUND himself

described social control, as “control of the conduct of each of us by the pressure of our fellow men, with whom

we must live together in society”: R. POUND, “The Case for Law”, Val.U.L.Rev. 1967, 211. 436 P. ZUMBANSEN, “The Future of Legal Theory” in S. MULLER, S. ZOURIDIS, M. FRISHMAN and L. KISTEMAKER (eds.),

The Law of the Future and the Future of the Law, Oslo, Torkel Opsahl Academic EPublisher, 2011, 336. 437 R. MICHAELS, “The Functionalism of Legal Origins” in M. FAURE and J. SMITS (eds.), Does Law Matter? On Law

and Economic Growth, Cambrdige, Intersentia, 2012, 26. 438 According to Roscoe Pound individual interests are claims resulting from individual life and personality;

public interests are claims from political life and objects open to public use; social interests are claims from

social life yearning to satisfy the needs of society as a whole. The latter two tend to overlap. 439 R. POUND, “The Case for Law”, Val.U.L.Rev. 1967, 212.

63.

individual interest against each other in case they conflict. However society does not

merely need protection from the aggressive, self-assertive individual. Groups may

become powerful within a society too and group claims and expectations may be urged

aggressively at the expense of the interests of the whole or of other groups with equal

claims to recognition and security440. Organized economic and financial power is one such

example (because trade has to be profitable encounters between commercial companies,

individual entrepreneurs, etc. and ordinary citizens are often conflictual; trade is not

made to strengthen social links, its “main purpose is to make profits at the expense of

ordinary citizens because exchanges and contracts are unequal”441) which has to be

curbed by the law whenever it becomes ‘too strong’442 and aggressive according to

POUND.443 From this perspective, law serves as “a vehicle and ‘tool’ for hope and

emancipation”444.

2.3. THE PRACTICABILITY OF LAW RELIES ON DEFINITIONS

98. Law, the preeminent “profession of words”445 as MELLINKOFF called it, is a special

field in that its purpose of organizing society through the protection of certain interests,

basically the purpose of “chang[ing] the nature, supplement[ing] and modify[ing] the

instinctive reactions of human beings”446 to make social communities possible, is

achieved principally “by talk rather than by actions”447. This means that “law wants to

change the biological nature of man (‘as an animal’) by placing it into an artificial,

cultural framework which is essentially created and maintained by words and battles

about words”448. ‘Words’449 or rather understandable definitions of words are

440 The most prevailing conflict, identified by many contemporary scholars is the conflict between economic

interests and social values: J.W. CIOFFI, Public Law and Private Power. Corporate Governance Reform in the Age

of Finance Capitalism, London, Cornell University Press, 2010, 13; P. ZUMBANSEN, “The Future of Legal Theory”

in S. MULLER, S. ZOURIDIS, M. FRISHMAN and L. KISTEMAKER (eds.), The Law of the Future and the Future of the

Law, Oslo, Torkel Opsahl Academic EPublisher, 2011, 338. 441 B. CRETTEZ, B. DEFFAINS, G. LEYTE and L. PFISTER, “On the Law and Economics of the Origins of the French

Code Civil” in M. FAURE and J. SMITS (eds.), Does Law Matter? On Law and Economic Growth, Cambridge,

Intersentia, 2012, 258. 442 Strength is a relative concept. In this passage an economic and financial power is understood to be too

strong’ when it imposes external costs that result in losses for society. 443 R. POUND, “The Case for Law”, Val.U.L. Rev. 1967, 211-212. 444 P. ZUMBANSEN, “The Future of Legal Theory” in S. MULLER, S. ZOURIDIS, M. FRISHMAN and L. KISTEMAKER (eds.),

The Law of the Future and the Future of the Law, Oslo, Torkel Opsahl Academic EPublisher, 2011, 330. 445 D. MELLINKOFF, The Language of the law, Little, Brown and Co, Boston 1963, vi. 446 P. SACK, and J. ALECK (eds.), Law and anthropology, Aldershot, Dartmouth Publishing, 1992, xxi. 447 ibid. 448 ibid. 449 Legal words are ‘performative utterances’ according to AUSTEN. They are not just true or false statements of

facts but actually do bring about change in reality when spoken in an appropriate context. Performative

utterances do not merely say something, they do something. For instance, the words ‘I do’ spoken during a

marriage ceremony bring about change in reality: J.L. AUSTEN, How to do things with words. The William James

Lectures delivered at Harvard University in 1955, Oxford, Clarendon Press, 1962, 4-5, 19 and 25.

64.

consequently crucial in law for the “Praktabilität des Rechts”450. SHILLER agrees,

“definitions matter, [and so how we define ‘social usefulness’ – getting that definition

right – and incorporating that into a legal framework] will help us”451 to reform the banks

back into institutions that are advantageous to society.

99. Because we did not previously possess a particular defined designation for the role

of banks in society and ethical criteria concerning society to which banks had to comply,

legal engineering together with financial engineering got the chance to be one of the

causes of the last financial and economic crisis: securitisation was allowed to become

poisonous to the bloodstream of the entire global financial, and subsequently economic

system452. Thus by failing to direct the banking sector and by legally hardwiring financial

interdependencies453, the public sector allowed private-sector failures to continue

unrestrained454.

100. Apart from banks, ‘lawyers’455, the artists of interpretation and the real engineers

behind futures, options, stocks, swaps, bonds, investment, proprietary trading,

securitization etc.,456 need clear-cut definitions as well, which will enable them to

differentiate between a socially useful or useless way to exploit the activities and

instruments a bank has to offer, given that legal matters containing banking elements

are not isolated from social issues of employment, wealth distribution, insurance, and

family wellbeing. “In short, law and finance are locked into a dynamic process in which

the rules that establish the game are continuously challenged by new contractual

devices, which in turn seek legal vindication.”457

Lawyers therefore will also benefit from a defined linkage between laws concerning banks

and social welfare to avert further “‘camelisation’”458 of the law, resulting in more legal

certainty and better creation and interpretations of rules in favour of society and not the

homo oeconomicus. Jurisdiction will furthermore improve considering explicitation of a

450 H. COREMANS and M. VAN DAMME, Beginselen van wetgevingstechniek en behoorlijke regelgeving, Brugge, die

Keure, 2001, 6. 451 R.J. SHILLER, Finance and the Good Society, Princeton, Princeton University Press, 2012, 6. 452 K. BYTTEBIER and M. GESQUIERE, Algemene Beginselen Insolventierecht, Gent, Story Publishers, 2013, 7. 453 K. PISTOR, “A Legal Theory of Finance”, J.Comp.Econ. 2013, 43. 454 R.G. RAJAN, Fault Lines, Princeton, Princeton University Press, 2010, 155. 455 “Lawyers know that it pays to take words seriously, no matter what they are talking about and no matter

whether they want to clarify or to manipulate the facts.”: P. SACK, and J. ALECK (eds.), Law and anthropology,

Aldershot, Dartmouth Publishing Company Ltd, 1992, xiii. 456 R.J. SHILLER, Finance and the Good Society, Princeton, Princeton University Press, 2012, 82. 457 K. PISTOR, “A Legal Theory of Finance”, J.Comp.Econ. 2013, 2. 458 P. SACK, and J. ALECK (eds.), Law and anthropology, Aldershot, Dartmouth Publishing, 1992, 342. In this

passage the metamorphoses of law are compared to that of NIETZSCHE’s metamorphoses of the spirit. The camel

represents a type of law that allows itself to be loaded with any values or beliefs humanity wants to load it with.

65.

‘socially useful’ existence for banks is crucial to the defence in court of weaker parties

that have fallen victim to the banking system459 and more generally to the harmonious

development of a Rechtsstaat: “the law [and its definitions] (...) can (or should) be

utilized to generate meaningful cultural and/or ethical constraints in pursuit of broader

social objectives.”460 Otherwise law will fail in buying off the desire for vengeance so as

to maintain social peace461.

3. Defining and implementing ‘socially useful’

3.1. THE DEFINITION

101. The problem with vague open norms like ‘socially useful’ is that they can be

interpreted in function of the lay of the land462. The term social corporate responsibility

for instance “is a brilliant one; it means something but not always the same thing to

everybody”463. Most often than not these circumstances are dictated by the economically

strong. Concrete definitions are therefore a must.

102. After the most recent global financial and economic crisis I believe ‘socially useful’

in a banking context should be understood as more than socially responsible (whatever

that might mean), more than a meager “euphemism in a search for good conscience or

out of a concern for political correctness.”464 Banks should be made subservient to

society465 by defining ‘socially useful’ as ‘aims and actions that 1) give priority - to

service to others over profit for the bank and 2) have a limited profit distribution466

459 R. VOLANTE, “Standard Contract Terms and Financial Contracts” in H. COLLINS (ed.), Standard Contract Terms

in Europe: A basis for and a Challenge to European Contract Law, Alphen aan de Rijn, Kluwer Law International,

2008, 277-289. 460 D. AWREY, W. BLAIR and D. KERSHAW, “Between Law and Markets” , LSE Law, Society and Economy Working

Papers 2012, 43. 461 R. POUND, “The Case for Law”, Val.U.L.Rev. 1967, 205. 462 Other examples in this thesis of open norms whose meaning depend on the circumstances are ‘company

interest’, ‘honestly’, ‘fairly’, ‘professionally’, ‘sound’, ‘prudent’, ‘experienced’, ‘healthy’, etc. 463 VOTAW quoted in: A.B. CARROLL, “Corporate Social Responsibility. Evolution of a Definitional Construct”, BAS

1999, 280. 464 P. JORION, Why Stewardship of Finance?, Antwerpen, Intersentia, 2012, 1. 465 A. BAKAS and R. PEVERELLI, The Future of Finance, Oxford, Infinite Ideas, 2009, 288. 466 Andrew Carnegie, a 19th century industrialist leading the expansion of the steel industry in the U.S.A., stated

in his ‘Gospel of Wealth’ that the life of the economically successful man should consist out of the accumulation

of wealth followed by its distribution (‘dispensation’) to a good cause: R. ABRAMOVAY, “Philanthropy beyond the

sectoral approach” in L. BRUNI and S. ZAMAGNI (eds.), Handbook on the Economics of Reciprocity and Social

Enterprise, Cheltenham, Edward Elgar, 2013, 255.

66.

purpose where half of the profit must explicitly benefit the society as a whole in which a

bank exploits its activities’467.

This definition would mean that banks can continue making profit (“profits can serve as a

means to an end (...) profits are like food – not the purpose of life, but essential to

maintaining health and strength, ultimately for the service of the common good”468) by

taking deposits or other repayable funds from the public, grant credits for their own

account and other banking activities permitted by legislation as long as these activities

confirm the principle of “providing service to others is more important than profit for

ourselves”469. “Within this perspective, profit is mainly a means to the goal of

‘sustainable development’470. Profit is necessary to meet the needs of one group of

stakeholders – shareholders and other investors – but the goal should be sustainable

development for everyone. Only when society, entrepreneurs and clients flourish can a

bank also flourish.”471

103. For instance, the banking activity lending, in particular ‘credit agreements relating

to residential immovable property’472 to ‘consumers’473 (who can afford it) at a ‘fair

467 Some elements of this definition resemble Professor DEFOURNY’s criteria of an ideal social enterprise as

quoted by ESPOSITO: R.T. ESPOSITO, “The Social Enterprise Revolution in Corporate Law: A Primer on Emerging

corporate entities in Europe and the United States and the Case for the Benefit Corporation”, Wm. & Mary

Bus.L.Rev. 2013, 646. Inspiration for the definition has also been drawn from the principles of the Global

Alliance for Banking on Values (a membership organization, made up of the world’s leading sustainable banks)

which postulate that banks need “to start working to fulfill specific needs of society (social impact investing), a

stakeholder approach is needed and product development [should be done] together with the client”: F.J. DE

GRAAF, “Triodos Bank – Mission-Driven Success Pays Off: From Duct Enfant Terrible To European Business

Leader” in H. SPITZECK, M. PRISON and C. DIERKSMEIER (eds.), Banking with Integrity. The Winners of the

Financial Crisis?, Hampshire, Palgrave Macmillan, 2012, 159. 468 A.J. UELMEN, “Law and Religion” in L. BRUNI and S. ZAMAGNI (eds.), Handbook on the Economics of Reciprocity

and Social Enterprise, Cheltenham, Edward Elgar, 2013, 213. Inevitably banks first need to raise enough funds

to cover their functioning costs. Once that is accomplished the profit according to my definition will need to be

split between the partners or shareholders of the bank and their chosen social purpose. A part of the profit to

be distributed between the partners or shareholders will need to be reserved in accordance to the applicable

legislation. 469 D. COECKELBERGH, T. BREESCH and P. VAN MERRIS, Ondernemen met de Vennootschap met Sociaal Oogmerk,

Gent, Mys & Breesch, 2001, 37 (my own translation). 470 “Sustainable development is development that meets the needs of the present generation without

jeopardizing the ability of future generations to meet their own needs”: W. VAN GERVEN and S. LIERMAN,

Beginselen van het Belgisch Privaatrecht, I Algemeen deel, Veertig jaar later, Privaat- en Publiekrecht in een

Meerlaagd Kader van Regelgeving, Rechtsvorming en Regeltoepassing, Mechelen, Kluwer, 2010, 496. 471 D. GRAYSON, “Foreword” in H. SPITZECK, M. PRISON and C. DIERKSMEIER (eds.), Banking with Integrity. The

Winners of the Financial Crisis?, Hampshire, Palgrave Macmillan, 2012, 159. 472 Concluding credit agreements relating immovable property with consumers is a banking activity that is

eligible for mutual recognition (mutual recognition can be understood as banks authorized in their home

Member States being allowed to carry out throughout the Union any or all of the activities referred to in the list

of activities of Annex I of the Banking Directive subject to mutual recognition by establishing branches or by

providing services: Consideration 19 Banking Directive) according to art. 35 Banking Directive read together

with point 2 of Annex I of the Banking Directive (and art. 3, § 2, point 2 Belgian Banking Law; Art. 4, section 2

New Belgian Banking Law). A credit agreement between a creditor and a consumer relating specifically to

residential immovable property is defined as an agreement whereby a creditor grants or promises to grant, to a

consumer, a credit which is secured either by a mortgage or by another comparable security commonly used in

a Member State on residential immovable property or secured by a right related to residential immovable

67.

interest rate’474 is socially useful475 (as in the first part of the definition) when these loans

need to be repaid over a reasonable amount of time for the reason that “non-productive

savings (...) trusted by depositors to banks are channeled to other economic actors”476 to

ensure their residential stability (the social usefulness comprises in the fact it “enables

the individual without inherited resources to use future income prospects to purchase

houses today”477). However these credit agreements relating to residential immovable

property can be of any duration (due to the principle of party autonomy). Convincing the

consumer to conclude such a credit agreement where the duration is longer than

necessary for the consumer to repay the loan because the monthly interest is less than

with a credit agreement containing a shorter duration is socially useless. The reason

being that a credit agreement with a longer duration is actually more expensive in the

total picture; the longer the loan the slower the sum of the borrowed capital decreases

on which the interest rate is calculated (hence bankers like the consumer to pay slowly

where consumer prefer accelerated repayment when circumstances allow so). Credit

agreements containing a longer duration than necessary for the consumer only aim at

“amplifying the concentration of wealth [of the bank] (...) [and allow for] an unbalanced

distribution of wealth”478.

104. JORION stressed that Lord Adair TURNER surprisingly has also indentified a socially

useless aspect to the lending of money for housing. Lord Adair TURNER sees no social

property and the purpose of which is to acquire or retain property rights in land or in an existing or projected

building in the form of a deferred payment, loan or other similar financial accommodation according to art. 3

Mortgage Directive. Credit lending to consumers for purposes to purchase residential immovable property is

regulated to protect the consumer by the latter directive in the European Union overall and in Belgium

specifically by a law of 4 August 1992 (Wet 4 augustus 1992 op het hypothecair krediet, BS 19 augustus 1992,

18.196 ((hereinafter: ‘Belgian Mortgage Law’).). Neither of these legislations concern the protection society as

a whole from socially useless consequences of mortgage loans. 473 A consumer is defined as “a natural person who (...) is acting for purposes which are outside his trade,

business or profession” according to art. 4(1) Mortgage Directive, which in turn refers to the definition in art.

3(a) Directive of the European Parliament and of the Council nr. 2008/48/EC, 23 April 2008 on credit

agreements for consumers and repealing Council Directive 87/102/EEC, Pb.L. 22 May 2008, episode 133, 72. 474 Art. 17 Mortgage Directive (art. 7-10 Belgian Mortgage Law). JORION distinguishes two types of loans; loans

aimed at creating new wealth and loans whereof the only purpose is to meet a current lack of resources (for an

individual or household usually). In the first instance the interest paid is but a share of the newly created riches

as the riches which interest constitutes has been created alongside in the productive process, the payment of

interest is therefore justified (as long as the principle of private property is not being questioned). In the

second instance however the payment of interest in unjustifiable as no new wealth is created, a immediate

need is just fulfilled. “Lending with the purpose of ensuring subsistence should be regarded as a way for

addressing community needs and should be provided as a public service sheltered from any logic of profit”: P.

JORION, Why Stewardship of Finance?, Antwerpen, Intersentia, 2012, 6. 475 Lord Adair TURNER remarks that it is very difficult to “say which type of credit is socially useful. There are

deep underlying issues here, e.g. ‘how much credit is valuable?’”: Adair, TURNER. 2013. “Socially useful financial

instruments and activities” interview, 12 February 2013 (Appendix I); A. TURNER et al., The Future of Finance:

The LSE Report, 22-30. 476 G. SCHRANS and R. STEENNOT, Algemeen Deel van het Financieel Recht, Antwerpen, Intersentia, 2003, 417

(my own translation). 477 A. TURNER et al., The Future of Finance: The LSE Report, 26. 478 P. JORION, Why Stewardship of Finance?, Antwerpen, Intersentia, 2012, 5.

68.

benefit to one generation buying residential estate from the prior generation at an

inflated price, the lame justification being that the price of the land has gone up; one

generation had to borrow for 10 years to buy lodging, then the following generation will

have to borrow for 15 years, and the generation after, for twenty years and so on.479 The

easy availability of mortgage credit is also socially useless as it “can generate a

credit/asset price cycle, and can encourage households on average to select levels of

income leverage which, while sustainable in good and steady economic times, increase

vulnerability to employment or income shocks. It can therefore create macroeconomic

volatility. And it can tempt some individuals, in pursuit of prospective capital gain, into

debt contracts which harm their individual human welfare rather than maximize it.”480

105. Furthermore and most importantly the definition (as in the second part of the

definition) would also imply that half of the profit made from the activities of banks,

which prioritized the service to others, would need to be dispensed to a social purpose of

choice like cancer research (or any other health related purpose or organization), the

renovation of buildings and infrastructure, the support of the homeless, unemployed and

the poor, education, environmental protection, restoration of cultural patrimonies, just to

name a few481.

3.2. THE IMPLEMENTATION: THE ESSENTIAL EUROPEAN LEGAL REFORM

106. As “long as profit (maximization) for shareholders is the overarching goal, any

attempt at prioritizing [societal] concerns (...) will quickly hit a ceiling”482: “when the

core duty is not in place, when the decision makers in [banks] are not required to

integrate [societal] concerns into the decisions of how the core business of the [bank] is

to be run, and when there is no hard law stating that [banks] must be run in a socially

[useful] manner”483, the risk exists of the proposal of banks to be socially useful never to

be realized484. The contemporary requirement for banks to merely increase transparency

479 Paul JORION, 2013, “Lord Adair Turner: socially useful and socially useless financial activities” VUB

Stewardship of Finance lecture 7, 25 November 2013. 480 A. TURNER et al., The Future of Finance: The LSE Report, 26-27. 481 These examples of social purposes correspond with the social purposes a VSO in Belgium can pursue: D.

COECKELBERGH, T. BREESCH and P. VAN MERRIS, Ondernemen met de Vennootschap met Sociaal Oogmerk, Gent,

Mys & Breesch, 2001, 38-39. 482 B. SJÅFJELL, “Regulating Companies as if the World Matters: Reflections from the Ongoing Sustainable

Companies Project”, Wake Forest L.Rev. 2012, 118. 483 B. SJÅFJELL, “Regulating Companies as if the World Matters: Reflections from the Ongoing Sustainable

Companies Project”, Wake Forest L. Rev. 2012, 126. 484 SAINT -JUST (1767-1794) amongst others, believed virtue could only be exercised within a framework that is

favorable and does not discourage in any case the exercise of virtue by placing those who want to practice it

into disadvantage. Thus, in the world of small-time corruption that characterizes finance, those who today

would prioritize honesty and society in the practice of business, would be quickly swept away. This means that

69.

regarding profits made485 for instance “is neither relevant nor reliable. There are even

studies that indicate ‘a negative relation, i.e. the more a firm discloses, the worse its

[societal] performance’. The uglier the company the more makeup it uses.”486

Undeniably the success rate of banks abiding by the definition of ‘socially useful’ would

depend on its incorporation in law. “Even those like Milton Friedman, who insists that

businesses’ sole obligation is to generate profits for corporate shareholders,

acknowledges that corporations should comply with applicable laws and regulations”487.

At the end of the day each and every enterprise fulfills its “economic mission within the

framework of legal requirements set forth by the society’s legal system”488, just as any

“good banking relationship is based on respect for legislation”489.

107. Thus legal reform is necessary to support the social usefulness of banks and to

codify it as an obligation for ‘all banks’490 in Europe so that banks cannot simply ‘switch’

Member states in order to avoid heavy obligations: “countries with though regulators will

see capital flow out to the less regulated economies (...) This in turn increases the call of

local banks for relaxed regulation in order to maintain their competitiveness [leading to]

(...) a race to the bottom across nations as regulatory standards are relaxed.”491

Therefore I propose that the Banking Directive should incorporate the suggested

definition in one of its articles as a new legal specialty for all legal persons in the

business of providing banking activities on the territory of the European Union.

The practical outcome of this rule would be that all banks active in the European Union

will not have the legal capacity to act outside the legally granted domain of the definition.

Banks will only be able to act in accordance with the suggested raison d’être envisioned

we need to help financiers (and more importantly bankers) to be virtuous without hope that their virtue

manifests itself in advance: P. JORION, Misère de la pensée économique, Paris, Fayard, 2012, 59. Take for

instance the case of Anthony Jenkins. Jenkins wanted to introduce new ethical and moral standards in Barclays

(supra) without any legal framework obliging him to do so, however after 18 months in the job Jenkins started

to sing a different tune contradicting all the values he used to stand for (increasing bonus pay outs despite falls

in profit, etc.): P. JENKINS. 2014. “Barclays chief loses credibility over bonuses”, Financial Times, 5 March 2014,

www.ft.com/intl/cms/s/0/df0bfeac-a485-11e3-9cb0-00144feab7de.html#axzz31SH2BJYA. 485 Consideration 52 Banking Directive. 486 B. SJÅFJELL, “Regulating Companies as if the World Matters: Reflections from the Ongoing Sustainable

Companies Project”, Wake Forest L.Rev. 2012, 126. 487 D. MILLON, “Shareholder Social Responsibility”, Seattle U.L.Rev. 2013, 920. 488 A.B. CARROLL, “Corporate Social Responsibility. Evolution of a Definitional Construct”, BAS 1999, 283. 489 Principle 6 BVB, gedragscode BVB, 11 november 2009, (my own translation),

http://economie.fgov.be/nl/binaries/gedragscodbvb_tcm325-58954.pdf. 490 Many might disagree with the suggestion to oblige all banks to be socially useful. The reasoning behind this

suggestion is the observation that in a system based on competition and profit, banks which are ‘ethical’ and

which do invest in societal goals get outcompeted or forced by ‘the invisible hand’ to depart with their good

intentions, like in the case of Barlcays Bank Plc. Of course there are exception to ‘the rule’ however this thesis

aims at a suggestion to make socially useful banks ‘the rule’ and not vice versa. 491 A. TURNER et al., The Future of Finance: The LSE Report, 249.

70.

by the European legislator for banks (give priority to service to others over profit and

have a limited profit distribution purpose where half of the profit must explicitly benefit

the society as a whole in which a bank exploits its activities)492.

108. A possible problem with this proposed implementation is that banks might regard

the opportunity cost of being obliged to be socially useful too high to keep their European

clientele and move their business together with their registered office, central

administration or principal place of business493 (and their secondary establishments494)

outside the European Union where the rules are not as strict. Ideally, since it is a

research design and since today’s economy is very much globalized, a suggestion to

remedy this problem would be a sort of global “Constitution for the economy”495 obliging

all governments of all nations to implement this legal specialty for banks using the legal

vehicles they have under their disposal that allow for the combination of profit and care

for the society. Lord Adair TURNER also believes that similar proposals stand a bigger

chance in a “worldwide system of regulation embodied in a worldwide treaty

organization, like the WTO”496.

3.3. A POTENTIAL CONSEQUENCE OF THE IMPLEMENTATION FOR THE BELGIAN LEGAL

ORDER

109. In the hypothesis that this definition would be implemented in the Banking

Directive as a new legal specialty for banks, the consequence would be that national

authorities of the Member States maintain the choice of form and method to achieve the

result of socially useful banks497; the definition of socially useful does not link banks with

a specific legal form. In contrast to regulations, directives are namely not directly

applicable to the internal legal order of a Member State. Directives obtain their full

normative status only after transposition into national law.498

492 “Aristotle taught that virtue is something we cultivate with practice: ‘we become just by doing just acts,

temperate by doing temperate acts, brave by doing brave acts”: M. SANDEL, What Money Can’t Buy. The Moral

Limits of Markets, London, Allen Lane, 2012, 128. According to this logic obliging banks to act virtuous will

result in banks being virtuous. 493 Art. 54 TFEU. 494 Art. 49 TFEU. 495 Paul JORION. 2014. “Downstream rather than upstream, woe to us!” speech, Studiedag Corporate governance in de financiele sector: uitdagingen na de financiele crisis en impact van de nieuwe bankenwet,

Stewardship of Finance Chair, Vrije Universiteit Brussel, 25 April 2014. 496 A. TURNER et al., The Future of Finance: The LSE Report, 2. 497 Art. 288, third indentation TFEU. 498 K. LENAERTS and P. VAN NUFFEL, Europees Recht, Antwerpen, Intersentia, 2011, 593.

71.

110. One of the plausible outcomes in Belgium with the ‘least amount of commotion’499

would be article 15 of the Belgian Banking Law (or article 16 of the New Belgian Banking

Law500) obliging banks to assume one of the commercial company forms mentioned in

article 2, § 2 of the Company Code501 and obliging the chosen commercial company form

to have a social purpose; a commercial “company form à la VSO”502 (whose legal

specialty consists out of a profit dispensation purpose). An example of a formulation in

the article could be: ‘a bank under Belgian law must assume a commercial company form

with legal personality and with a social purpose’.

111. Hypothetically, article 15 of the Belgian Banking Law would also need to contain

several new elements. Firstly the new article 15 will need do deviate from the normal

rules applicable to VSOs in concern to the limited profit distribution purpose. The Belgian

Banking Law would need to raise the limit of distributed profit to shareholders of banks to

50% and state that the rule contained in article 661, 5° of the Company Code concerning

the dividend cap of the VSO does not apply to banks, to be in accordance with the

proposed European Union law.

Secondly, since most banks will probably remain companies limited by shares under the

Belgian law at the time of this hypothetical obligation, the new article 15 of the Belgian

Banking Law would need to insert a rule for their ‘transformation’. In this case, the

company limited by shares exploiting banking activities would not need to be forced to

dissolve in order to be established as a company form with a new legal personality

(companies with legal personality can convert their legal form to another company with

legal personality without dissolution according article 774 and following of the Company

Code503) nor would it need to be forced to convert to a new company form as the basic

company form to which the VSO variety will have to be applied can remain the same. All

article 15 of the Belgian Banking Law would need to do is to oblige all shareholders of an

499 The suggested definition, if implemented would limit the legal capacity of banks. This new legal specialty

would not need to be achieved by some new status for banks created by the Belgian legislator due to the

existence of the company variety form VSO. In these circumstance banks would only need to be obliged to

change their company’s objectives in their articles of association, hence my choice of words ‘least amount of

commotion’ (infra). 500 Since the Belgian Banking Law is still effective during the writing of the thesis I will remain referring to its

article 15 hereinafter. Using the same logic, when the New Belgian Banking Law comes into force this

suggested obligation should be contained in its article 16. 501 Except for the European Company, the European Cooperative Society and the European Economic Interest

Grouping (supra). 502 D. COECKELBERGH, T. BREESCH and P. VAN MERRIS, Ondernemen met de Vennootschap met Sociaal Oogmerk,

Gent, Mys & Breesch, 2001, 24. For instance a company limited by shares with a social purpose. 503 D. VAN GERVEN, Beginselen van Belgisch Privaatrecht, IV, Rechtspersonen, I, Rechtspersonen in het

Algemeen, Verenigingen, Stichtingen & Publiekrechtelijke Rechtspersonen, Mechelen, Kluwer, 2007, 230.

72.

existing bank to “unanimously”504 alter the articles of association505 of its bank in

conformity with article 559 of the Company Code as the new legal specialty entails an

alteration to the essence of the bank’s company’s objectives506.

112. In summary, this proposed bank ‘resolution’507 regime would mean that the profit

dispensation purpose508, the new legal specialty of banks in other words, would be

achieved through an obligation for all partners or shareholders of a new or existing bank

to include certain provision in their bank’s company objectives (its association specialty).

The company objectives would have to state that the banking activities to be exploited

aiming at the generation of (collective) profit need to be performed with the prioritization

of the interest of others to whom the banking activity is provided when the bank’s profit

interest conflicts with the interests of the former, that half of the generated profit would

have to be dispensed to an identified social purpose and that the partners or

shareholders enjoy a limited profit distribution purpose of maximum 50% of the profit509

504 P.-A. FORIERS and A. FRANÇOIS, “Een nieuwe kijk op enkele klassieke dichotomieën in het

vennootschapsrecht” in Belgisch Centrum van het vennootschapsrecht (ed.), De Modernisering van het

Vennootschapsrecht, Brussel, Larcier, 2014, 47. 505 D. COECKELBERGH, T. BREESCH and P. VAN MERRIS, Ondernemen met de Vennootschap met Sociaal Oogmerk,

Gent, Mys & Breesch, 2001, 28 and 215-216. 506 K. GEENS and M. WYCKAERT, Beginselen van Belgisch Privaatrecht, IV, Verenigingen en Vennootschappen, II,

Algemeen Deel, Mechelen, 2011, 175. 507 According to the European Commission a clear and comprehensive bank resolution regime is necessary to

ensure long term financial stability and for reducing the potential public cost of possible future financial crises.

“Resolution means the restructuring of an institution in order to ensure the continuity of its essential functions,

preserve financial stability and restore the viability of all or part of that institution”: COM(12)416 [Commission

document nr. 416 of 2012]. Obliging banks to be companies legally limited by a (collective) social dispensation

purpose seems therefore as a restructuring in accordance with the European desires. 508 All acts of a VSO are supposed to be aimed at the realization of profit which should mainly be dispensed on

the social purpose specified in the articles of association (supra). 509 Some might argue that shareholders will find other creative ways to get paid. SHILLER explains this

phenomenon using the theories of the economist HIRSCH, namely that the introduction of market incentives and

mechanisms can change people’s attitude and crowd out nonmarket values (the ‘commercialization effect’): R.J.

SHILLER, Finance and the Good Society, Princeton, Princeton University Press, 2012, 120-121. The case of the

Dutch bank, Triodos Bank N.V. demonstrates that by focusing on a goal apart from profit this commercialization

effect can be undone as the focus on a certain social goal induces shareholders to accept a limited dividend:

F.J. DE GRAAF, “Triodos Bank – Mission-Driven Success Pays Off: From Duct Enfant Terrible To European

Business Leader” in H. SPITZECK, M. PRISON and C. DIERKSMEIER (eds.), Banking with Integrity. The Winners of

the Financial Crisis?, Hampshire, Palgrave Macmillan, 2012, 164.

73.

CONCLUSION

113. Since the Marginalist Revolution510 the rationality of the homo oeconomicus and the

laissez-faire approach seem to have crowded out all of the other values in our capitalistic

system and its financial markets. Together these principles were responsible for many

advantageous developments, however the most recent financial and economic crisis has

proven that a system based on such principles has its limits: “we have benefitted from

[security] capitalism, but we have now become prisoners of our own system”511. More

and more voices are being raised for a drastic change, especially concerning a more

society friendly bank. Lord Adair TURNER was one of these voices by suggesting that all

financial institutions should be socially useful. This concept was however never defined

and therefore limited in its practical application.

114. In this thesis an attempt was made to define ‘socially useful’ and the definition was

suggested to be implemented at the European level to limit the legal specialty of banks.

The suggestion for implementation by the Banking Directive was made to avoid capital

flights from one Member State to another. Under the hypothesis that this definition would

be implemented, the implication for Belgium as a Member State was explored. More

specifically the option was considered to oblige all banks under Belgian law to become

companies with a social purpose in order to coerce banks to function sustainably with a

social perspective.

115. In legal terms, this suggestion of clearly defining the playing field within which a

bank can act, a playing field where the parameters are determined by the consequences

for society,512 unhesitatingly comes down to a very stark containment of the principle of

party autonomy. It constitutes both as a legal limitation on the ability of the founders of

510 Because of this Marginalist Revolution the impact of the French Revolution on the whole of society was

rather marginal. 511 L. TIMMERMAN, J.M. DE JONGH and A.J.P. SCHILD, “The Rise of the Social Enterprise: How Social Enterprises Are

Changing Company Law Worldwide” in S. MULLER, S. ZOURIDIS, M. FRISHMAN and L. KISTEMAKER (eds.), The Law of

the Future and the Future of the Law, Oslo, Torkel Opsahl Academic EPublisher, 2011, 308. 512 After all, if one is not honest and genuine, one can be made genuine. A thought assigned to Marcus Aurelius

Antonius with which BYTTEBIER begins his contribution to the legal doctrine about rules of conduct: K. BYTTEBIER,

“Gedragsregelen bij financiлle transacties: huidige praktijk en perspectieven” in M. TISON, C. VAN ACKER and J.

CERFONTAINE (eds.), Financiële regulering op zoek naar nieuwe evenwichten. Volume II. Financiële markten,

financiële transacties, prudentieel recht, Antwerpen, Intersentia, 2003, 4.

74.

a bank to regulate their company’s objectives at their own discretion whilst as a legal

limitation on the legal capacity of banks513.

Despite the far-reaching nature, it is a very relevant approach at “a time when finding

new direction is crucial”514, when “we need to ensure that we are sufficiently radical”515

and when reform is necessary to restore faith in the system “where the rules of the game

seem tilted in favour of the few.”516 We simply cannot afford to solve problems “by

thinking the way we thought when we created them"517, anymore518: the “public has

expressed widespread revulsion against the liberalization that led to more vibrant

financial markets and freer [banking] institutions.”519

116. Although all the new rules and regulations from the European and national

legislator today reforming the banking sector as an effort to regain the trust of the public

do not come near in terms of ‘radical reform’ to my proposal, I cherish the belief that

“the more of these ideas are spread around that – in a variety of ways (...) the more

others will begin to pick them up.”520 Moreover, scholars like SJÅFFJELL who propose all

companies (not just banks) to be legally obliged by the European Union to function to the

advantage of society and the environment give the future course of the law in relation to

my proposal an optimistic outlook.

The time in history has arrived to start cultivating the virtue of banks by realizing the

idea of a broader social usage of a bank’s capital; the time to make all banks “work for

the betterment of humankind”521 using its capital and its sophisticated financial tools.

513 But the principle of party autonomy is not completely limited. Legal subjects still have the choice to open a

bank or to remain running one in the context of my proposed legal framework. The legal subjects are also free

to decide to which social purpose they would want to dispense half of their profit on. 514 A. BAKAS and R. PEVERELLI, The Future of Finance, Oxford, Infinite Ideas, 2009, 18. 515 Lord Adair TURNER quoted in J. CERFONTAINE, “De instelling ‘bank’” in EVBFR – BELGIUM, 20 jaar Bankwet,

Antwerp, Intersentia, 2013, 24; A. TURNER et al., The Future of Finance: The LSE Report, 42. 516 R.G. RAJAN, Fault Lines, Princeton, Princeton University Press, 2010, 154. 517 A. EINSTEIN quoted in S. SCHMIDHEINY and THE BUSINESS COUNCIL FOR SUSTAINABLE DEVELOPMENT,

Changing Course: A Global Business Perspective on the Development and the Environment, Massachusetts, MIT

Press, 1992, 82. 518 “Creative ways forward” are the future: Adair TURNER. 2012. “Mansion House” speech, City Banquet, London,

11 October 2012. 519 R.G. RAJAN, Fault Lines, Princeton, Princeton University Press, 2010, 155. 520 Ron Grzywinski (an Amercian banker promoting community development and microfincance) quoted in: F.S.

WILSON and J.E. POST, “ShoreBank Corporation: Let’s Change the World” in H. SPITZECK, M. PRISON and C.

DIERKSMEIER (eds.), Banking with Integrity. The Winners of the Financial Crisis?, Hampshire, Palgrave

Macmillan, 2012, 156. Although this quote refers to microfinance and the activities of ShoreBank it fits in the

context of ‘socially useful’ banking just as well. 521 R.J. SHILLER, Finance and the Good Society, Princeton, Princeton University Press, 2012, 4.

75.

BIBLIOGRAPHY

Legislation

EUROPEAN LEGISLATION

Treaty on the Functioning of the European Union.

Regulation of the Commission nr. 1287/2006, 10 August 2006 implementing Directive

2004/39/EC of the European Parliament and of the Council as regards recordkeeping

obligations for investment firms, transaction reporting, market transparency, admission

of financial instruments to trading, and defined terms for the purposes of that Directive,

Pb. L. 2 September 2006, episode 241, 1.

Regulation of the European Parliament and of the Council nr. 575/2013/EC, 26 June 2013

on prudential requirements for credit institutions and investment firms and amending

regulation (EU) No 648/2012, Pb.L. 27 June 2013, episode 176, 1.

Directive of the Council nr. 93/22/EEC, 10 May 1993 on investment services in the

securities field, Pb.L. 11 June 1993, episode 141, 27.

Directive of the European Parliament and of the Council nr. 2004/39/EC, 21 April 2004 on

markets in financial instruments amending Council Directives 85/611/EEC and 93/6/EEC

and Directive 2000/12/EC of the European Parliament and of the Council and repealing

Council Directive 93/22/EEC, Pb.L. 30 April 2004, episode 145, 1.

Directive of the Commission nr. 2006/73/EC, 10 August 2006 implementing Directive

2004/39/EC of the European Parliament and of the Council as regards organisational

requirements and operating conditions for investment firms and defined terms for the

purposes of that Directive, Pb.L. 2 September 2006, episode 241, 26.

Directive of the European Parliament and of the Council nr. 2007/44/EC, 5 September

2007 amending Council Directive 92/49/EEC and Directives 2002/83/EC, 2004/39/EC,

2005/68/EC and 2006/48/EC as regards procedural rules and evaluation criteria for the

76.

prudential assessment of acquisitions and increase of holdings in the financial sector,

Pb.L. 21 September 2007, episode 247, 1.

Directive of the European Parliament and of the Council nr. 2008/48/EC, 23 April 2008 on

credit agreements for consumers and repealing Council Directive 87/102/EEC, Pb.L. 22

May 2008, episode 133, 66.

Directive of the European Parliament and of the Council nr. 2011/89/EU, 16 November

2011 amending Directives 98/78/EC, 2002/87/EC, 2006/48/EC and 2009/138/EC as

regards the supplementary supervision of financial entities in a financial conglomerate,

Pb.L. 8 December 2011, episode 326, 113.

Directive of the European Parliament and of the Council nr. 2013/36/EU, 26 June 2013

on access to the activity of credit institutions and the prudential supervision of credit

institutions and investments firms, amending directive 2002/87/EC and repealing

directives 2006/48/EC and 2006/49/EC, Pb.L. 27 June 2013, episode 176, 338.

Directive of the European Parliament and of the Council nr. 2014/17/EU, 4 February 2014

on credit agreements for consumers relating to residential immovable property and

amending Directives 2008/48/EC and 2013/36/EU and Regulation (EU) No 1093/2010,

Pb.L. 28 February 2014, episode 66 ,34.

NATIONAL LEGISLATION

Burgerlijk Wetboek

Wetboek van Vennootschapppen

Wetboek van Koophandel

Wet 4 augustus 1992 op het hypothecair kredtiet, BS 19 augustus 1992, 18.196.

Wet 22 maart 1993 op het statuut van en het toezicht op de kredietinstellingen, BS 19

april 1993, 8650.

77.

Wet 13 april 1995 tot wijziging van de wetten op handelsvennootschappen,

gecoördineerd op 30 november 1935, BS 17 juni 1995, 17.492.

Wet 22 februari 1998 tot vaststelling van het organiek statuut van de Nationale Bank van

België, BS 28 maart 1998, 9377.

Wet 2 augustus 2002 betreffende het toezicht op de financiële sector en de financiële

diensten, BS 4 september 2009, 39.121.

Wet 24 maart 2003 tot instelling van een basis-bank-dienst, BS 15 mei 2003, 26.402.

Wet 2 juni 2010 tot uitbreiding van de herstelmaatregelen voor de ondernemingen uit de

bank- en financiële sector, BS 14 juni 2010, 37.063.

Wet 2 juli 2010 tot wijziging van de wet van 2 augustus 2002 betreffende het toezicht op

de financiële sector en de financiële diensten en van de wet van 22 februari 1998 tot

vaststelling van het organiek statuut van de Nationale Bank van België, en houdende

diverse beplalingen (1), BS 28 september 2010, 59.140.

Wet 3 augustus 2012 betreffende diverse maatregelen ter vergemakkelijking van de

mobilisering van schuldvorderingen in de financiële sector, BS 24 augustus 2012, 50.674.

Wet 30 juli 2013 tot versterking van de bescherming van de afnemers van financiële

producten en diensten alsook van de bevoegdheden van de Autoriteit voor Financiële

Diensten en Markten en houdende diverse bepalingen (I), BS 30 juli 2013, 60.090.

KB 8 januari 1962 tot vaststelling van de voorwaarden tot erkenning van de nationale

groeperingen van coöperative vennootschappen en van de coöperative vennootschappen,

BS 19 januari 1962, 398.

KB 27 april 2007 tot omzetting van de Europese richtlijn betreffende de markten voor

financiële instrumenten, BS 31 mei 2007, 29.283.

KB 3 juni 2007 tot bepaling van nadere regels tot omzetting van de richtlijn betreffende

markten voor financiële instrumenten, BS 18 juni 2007, 32.935.

78.

KB 12 november 2012 met betrekking tot bepaalde openbare instellingen voor collectieve

belegging, BS 30 november 2012, 76.604.

FOREIGN LEGISLATION

Companies (Audit, Investigations and Community Enterprise) Act 2004.

Companies Act 2006.

Preparatory works

EUROPEAN PREPARATORY WORKS

COM(99)232 final [Commission document nr. 232 of 1999, final version].

COM(11)656 final [Commission document nr. 656 of 2011, final version].

COM(11)681 final [Commission document nr. 681 of 2011, final version].

COM(12)416 [Commission document nr. 416 of 2012].

COM(13)690 final [Commission document nr. 690 of 2013, final version].

COM(14)63 [Commission document nr. 63 of 2014].

COM(14)75 [Commission document nr. 75 of 2014].

79.

NATIONAL PREPARATORY WORKS

Hand. Bijzondere Commissie belast met het onderzoek naar de financiële en bankcrisis,

2009-10, 27 april 2009, nr. 52K1643/002.

Hand. Commissie voor de financiën en de begroting, 2012-13, 17 juli 2012, nr.

53K2341/003.

Wetsvoorstel tot wijziging van de wet van 22 maart 1993 op het statuut van en het

toezicht op de kredietinstellingen, teneinde het financiële draagvlak van de banken te

verstevigen en de verschillende bankactiviteiten van elkaar te scheiden, Parl.St. Kamer

2011-12, nr. 53K1835/001.

Wetsontwerp op het statuut van en toezicht op de kredietinstellingen, Parl.St. Kamer

2014-15, nr. 53K3406/001.

Wetsontwerp op het statuut van en toezicht op de kredietinstellingen, Parl.St. Kamer

2014-15, nr. 53K3406/002.

Official documents of other instances

OFFICIAL DOCUMENTS OF INTERNATIONAL AND EUROPEAN INSTANCES

Basel Committee on Banking Supervision (hereinafter: BCBS), charter, 13 January 2013,

www.bis.org/bcbs/charter.pdf.

Basel Committee on Banking Supervision (hereinafter: BCBS), core principles for

effective banking supervision, 14 September 2012,

http://www.bis.org/publ/bcbs230.pdf.

European Central Bank (hereinafter: ECB), opinion on the status and supervision of credit

institutions, 24 February 2014, nr. CON/2014/17,

www.ecb.europa.eu/ecb/legal/pdf/con_2014_17_f_sign.pdf.

80.

OFFICIAL DOCUMENTS OF NATIONAL INSTANCES

Belgische Vereniging van Banken en Beursvennootschappen (hereinafter: BVB),

gedragscode BVB, 11 november 2009,

http://economie.fgov.be/nl/binaries/gedragscodbvb_tcm325-58954.pdf.

Commissie voot het Bank-, Financie- en Assurantiewezen (hereinafter: CBFA), circulaire

over de prudentiële verwachtingen van de CBFA inzake deugedelijk bestuur van

financiële instellingen, 30 maart 2007, nr. PPB-2007-6-CPB-CPA,

www.nbb.be/doc/cp/nl/bo/circ/pdf/ppb_2007_6_cpb_cpa.pdf.

OFFICIAL DOCUMENTS OF FOREIGN INSTANCES

Financial Services Authority (hereinafter FSA), final notice to Barclays Bank Plc, 27 June

2012, nr. 122702, www.fsa.gov.uk/static/pubs/final/barclays-jun12.pdf.

Committee on Oversight and Government Reform, congressional hearing on the financial

crisis and the role of the federal regulators, 23 October 2008, nr. 110-209,

www.gpo.gov/fdsys/pkg/CHRG-110hhrg55764/html/CHRG-110hhrg55764.htm.

Jurisdiction

Cass. 30 juni 1854, Pas. 1854, I, 336.

Cass. 9 december 1948, Pas. 1948, I, 699.

Cass. 31 mei 1957, Pas. 1957, I, 1176.

Cass. 19 januari 1973, R.W. 1972-1973, 1381.

Cass. 28 november 2013, AR C.12.0549.N.

81.

Doctrine

HANDBOOKS

ADMATI, A. and HELLWIG, M., The Bankers’ New Clothes. What’s wrong with banking and

What to Do about It, Princeton, Princeton University Press, 2013, 398 p.

ARNER, D., Economic Stability, Economic Growth and the role of Law, Cambridge,

Cambridge University Press, 2007, 382 p.

ARROW, K.J., SEN, A. and SUZUMURA, K., Handbook of Social Choice and Welfare, II,

Oxford, North-Holland, 961 p.

AUSTEN, J.L., How to do things with words. The William James Lectures delivered at

Harvard University in 1955, Oxford, Clarendon Press, 1962, 166 p.

BALLON, G.L., GEENS, K., STUYCK, J. and TERRYN, E., Inleiding tot het economisch recht,

Mechelen, Kluwer, 2010, 632 p.

BANNOCK, G., BAXTER, R.E. and DAVIS, E., The Penguin Dictionary of Economics, London,

Penguin Books, 2003, 410 p.

BASEL COMMITTEE ON BANKING SUPERVISION, A brief history of the Basel Committee, Basel,

Bank for International Settlements, 2013, 9 p.

BASEL COMMITTEE ON BANKING SUPERVISION, A New Capital Adequacy Framework, Basel,

Bank for International Settlements, 1999, 62 p.

BAKAS A. and PEVERELLI, R., The Future of Finance, Oxford, Infinite Ideas, 2009, 308 p.

BENJAMIN, J., Financial Law, New York, Oxford University Press, 2007, 654 p.

BERNAUW, K., COLLE, P., DAMBRE, M. and DEMUYNCK I. (eds.), Liber amicorum Yvette

Merchiers, Brugge, die Keure, 2001, 1030.

82.

BOASSON, CH., Sociological aspects of law and international adjustment, Amsterdam,

North-Holland Publishing Company, 1950, 118 p.

BRUNI, L. and ZAMAGNI, S. (eds.), Handbook on the Economics of Reciprocity and Social

Enterprise, Cheltenham, Edward Elgar, 2013, 465 p.

BRUYNEEL, C., BUYLE, J., DELIERNEUX, M., ROMAIN, J. and VAN DEN HOUTE, E., Synthèses de

Droit Bancaire et Financier: Liber Amicorum Andre Bruyneel, Brussel, Bruylent, 2008,

697 p.

BYTTEBIER, K., “Gedragsregelen bij financiële transacties: huidige praktijk en

perspectieven” in M. TISON, C. VAN ACKER and J. CERFONTAINE (eds.), Financiële regulering

op zoek naar nieuwe evenwichten. Volume II. Financiële markten, financiële transacties,

prudentieel recht, Antwerpen, Intersentia, 2003, 3-63.

BYTTEBIER, K, Handboek Financieel Recht, I, Antwerpen, Kluwer, 2001, 1200 p.

BYTTEBIER, K. DE MEUE, M. and GEIGNER, H., Inleiding tot het Handelsrecht, Brugge, die

Keure, 2007, 355 p.

BYTTEBIER, K. and FELTKAMP, R. (eds.), De regulering van het Beursapparaat, Brugge, die

Keure, 1997, 487 p.

BYTTEBIER, K. and GESQUIERE, M., Insolventierecht. Algemene Beginselen, Gent, Story

Publishers, 2014, 135 p.

CAMPBELL, A. and CARTWRIGHT, P., Banks in Crisis: the legal response, Burlington, Ashgate,

221 p.

CASU, B., GIRARDONE C. and MOLYNEUX, P., Introduction to Banking, Essex, Pearson

Education, 2006, 526 p.

CATTARUZZA, J., KUPERS, W. and PEETERS, I., Liber Amicorum Achilles Cuypers, Brussel,

Larcier, 2009, 347 p.

83.

CHOMSKY, A., Occupy, London, Penguin Books, 2012, 121 p.

CIOFFI, J.W., Public Law and Private Power. Corporate Governance Reform in the Age of

Finance Capitalism, London, Cornell University Press, 2010, 287 p.

COECKELBERGH, D., BREESCH T. and VAN MERRIS, P., Ondernemen met de Vennootschap met

Sociaal Oogmerk, Gent, Mys & Breesch, 2001, 394 p.

COIPEL, M., “Introduction générale et présentation des diverses forms de groupements” in

M. COIPEL, Droit des sociétés commerciales, boek 2, Diegem, Kluwer, 1998, 57-115.

COLAERT, V., De Rechtsverhouding Financiële Dienstverlener – Belegger, Brugge, die

Keure, 2011, 672 p.

COMANT, B., Le droit comptable belge applicable aux instruments financiers, Brussel,

Larcier, 2001, 488 p.

COREMANS H. and VAN DAMME, M., Beginselen van wetgevingstechniek en behoorlijke

regelgeving, Brugge, die Keure, 2001, 200 p.

CORNELIS, L., Algemene theorie van de verbintenis, II dln., Antwerpen, Intersentia, 2000,

997 p.

CORNELIS, L., Beginselen van het Belgische buitencontractuele aansprakelijkheidsrecht, I,

Antwerpen, Maklu, 1989, 744 p.

CORNELIS, L. and PEETERS, J.,“Gedragsregels van bemiddelaars bij transacties in financiële

instrumenten, getoetst aan het aansprakelijkheidsrecht” in E. WYMEERSCH (ed.), Financieel

recht tussen oud en nieuw, Antwerpen, Maklu, 1996, 621-685.

D'ONORIO, J., DE LA SOUJEOLE, B., SOTFFERL-MUNCK, P., AYNES, L., LE CANNU, P., DARMASIN, S.,

CATTOIR-JONVILLE, V. and LE TOURNEAU, P., L'ethique du droit des affaires, Paris, Tequi,

2006, 143 p.

84.

DE BARSY, E., HENRION, L. and BRUYNEEL, A., Le Droit Economique et Financier en 1985:

Hommage a Robert Henrion, Brussel, Bruylant, 1985, 479 p.

DE MUYNCK, H., Vennootschapsrecht in België, Gent, Academia Press, 2012, 288 p.

DE PAEPE, P., Recht wat is dat eigenlijk?, Antwerpen, Kluwer, 1989, 139 p.

DE VROEDE, P. and GORUS, J., Inleiding tot het recht, Mechelen, Kluwer, 2007, 583 p.

DE VUYST, V., Internal governance bij financiële conglomeraten, Antwerpen, Intersentia,

2010, 737 p.

DEBEUCKELAERE, W. and VOORHOOF, D. (eds.), En toch beweegt het recht, Brugge, die

Keure, 2003, 304 p.

DEFLEM, M., Sociology of law, Cambridge, Cambridge University Press, 2010, 348 p.

DELAEY, S., De contractuele verhouding inzake portefeuillebeheer: op de wip tussen MiFID

en privaatrecht, Antwerpen, Intersentia, 2010, 367 p.

DELLA CANANEA G. and SANDULLI A. (eds.), Global Standards for Public Authorities, Napoli,

Editoriale Scientifica, 2012, 204 p.

DILLING, O., HERBERG, M. and WINTER, G., Responsible Business, Oxford, Hart Publishing,

2008, 335 p.

DIRIX, E., STEENNOT R. and VANHEES, H., Handels- en Economisch Recht in Hoofdlijnen,

Antwerpen, Intersentia, 2011, 520 p.

DOCHERTY, A. and VIORT, F., Better Banking. Understanding and Addressing the Failures in

Risk Management, Governance and Regulation, Chichester, Wiley, 2014, 363 p.

DROBRAK, J., Norms and the law, New York, Cambridge University Press, 2006, 308 p.

EDWARDS, F.R. and PATRICK, H.T. (eds.), Regulating International Financial Markets: Issues

and Policies, Dordrecht, Kluwer Academic Publishers, 1992, 317 p.

85.

EDWARDS, G.W., The Evolution of Finance Capitalism, New York, Longmans, Green & Co.,

1938, 429 p.

ERNOULT, J., HEMETSBERGER, W., SCHOPPMANN, H. and WENGLER, C., European Banking and

Financial Services Law, Gent, Larcier, 2008, 306 p.

EVBFR – BELGIUM, 20 jaar Bankwet, Antwerpen, Intersentia, 2013, 204 p.

FAURE M. and SMITS J. (eds.), Does Law Matter? On Law and Economic Growth,

Cambridge, Intersentia, 2012, 416 p.

FELTKAMP, R., HOUSSA, C. and STEENNOT, R. (eds.), Bescherming van de consument in het

financieel recht, Antwerpen, Intersentia, 2012, 235 p.

FLOOR, D.B., Tijdelijke handelsvennootschappen, Gent, Larcier, 2007, 314 p.

FOLKERTS-LANDAU D. and LINDGREN C.J., Toward a Framework for Financial Stability,

Washington D.C., 1998, 81 p.

FORIERS P.-A. and A. FRANÇOIS, A., “Een nieuwe kijk op enkele klassieke dichotomieën in

het vennootschapsrecht” in BELGISCH CENTRUM VAN HET VENNOOTSCHAPSRECHT (ed.), De

Modernisering van het Vennootschapsrecht, Brussel, Larcier, 2014, 27-64.

FRANÇOIS, A., Het Vennootschapsbelang in het Belgische Vennootschapsrecht,

Antwerpen, Intersentia Rechtswetenschappen, 1999, 795 p.

FRANÇOIS, A. and BYTTEBIER, K., “For-profit or not-for-profit? That’s the question. Profit

maximization in company law: myth or (legal) reality” in L. CORNELIS (ed.), Title unknown

at the time of writing this thesis, X, X, X, X.

FSA, Turner review: a regulatory response to the global banking crisis, London, FSA,

2009, 126 p.

GEENS, K. and WYCKAERT, M., Beginselen van Belgisch Privaatrecht, IV, Verenigingen en

Vennootschappen, II, Algemeen Deel, Mechelen, Kluwer, 2011, 906 p.

86.

GRACE, C. and WILKINSON, P., Sociological inquiry and legal phenomena, London, Collier

Macmillan, 1978, 307 p.

HAYEK, F.A., Individualism and Economic Order, Chicago, Chicago University Press, 1948

271 p.

HEGEL, G.W.F., Philosophy of Right, New York, Dover Philosophical Classics, 2005, 272 p.

HEIRBOUT, D., Privaatsgeschiedenis van de Romeinen tot heden, Gent, Academia Press,

2005, 416 p.

HELLWIG, M., Capital Regulation after the Crisis: Business as usual?, Bonn, Max Planck

Institute on Collective Goods, 2010, 21 p.

HIRSCHMAN, A.O., The Passions and the Interests. Political Arguments for Capitalism

before its Triumph, Oxfordshire, Princeton University Press, 2013, 161 p.

HOORNAART, L. and VAN DEN BOSSCHE, A.-M. (eds.), Economische groei in Europa: eerst de

crisis, dan het recht, Antwerpen, Intersentia, 2011, 122 p.

HORSMANS, G., “La société: notion et codification” in X, Droit des sociétés: les lois des 7 et

13 avril 1995, Bruxelles, Bruylant, 1995, 374 p.

HULS, N., Actie en reactie. Een inleiding in de rechtssociologie, Den Haag, Boom

Juridische Uitgevers, 2008, 367 p.

INSTITUUT FINANCIEEL RECHT (ed.), Financiële regulering in de kering, Antwerpen,

Intersentia, 814 p.

JOHNSON, S. and KWAK, J., 13 Bankers: The Wall street Takeover and the Newxt Financial

Meltdown, New York, Vintage, 316 p.

JORION, P., Le Capitalisme à l'Agonie, Paris, Fayard, 2011, 360 p.

JORION, P., Misère de la pensée économique, Paris, Fayrad, 2012, 355 p.

87.

JORION, P., Why Stewardship of Finance?, Antwerpen, Intersentia, 2012, 17 p.

JULIUS ROSENTHAL FOUNDATION FOR GENERAL LAW, My Philosphy of Law: credos of sixteen

American Scholars, Boston, Boston Law Book Co., 1941, 321 p.

KOOPMANS, T., “De rol van de wetgever”, in X, Honderd jaar rechtsleven, Zwolle, Tjeenk

Willink, 1970, 221-235.

KRUITHOF, M., “Privaatrechtelijke remedies tegen inbreuken op reglementaire

gedragsregels inzake beleggingsdiensten: zorgplicht, know your customer en best

execution” in H. DAEMS, I. DE MEULENEERE, R. FELTKAMP and R. STEENNOT (eds.),

Bescherming van de consument in het financieel recht, Limal, Anthemis, 2012, 151-201.

LENAERTS, K. and VAN NUFFEL, P., Europees Recht, Antwerpen, Intersentia, 2011, 753 p.

LOOS, A. (ed.), Director’s Liability: a Worldwide Review, Alphen aan den Rijn, Kluwer, 549

p.

MACNEIL, I. and O'BRIEN, J. (eds.), The future of financial regulation, Oxford, Hart

Publishing, 2010, 475 p.

MALINOWKSI, B., Crime and Custom in Savage Society, New York, Harcourt, Brace &

Company Inc., 1926, 132 p.

MELLINKOFF, D., The Language of the law, Little, Brown and Co, Boston 1963, 526 p.

MERTZ, E., The role of social science in law, Burlington, Ashgate, 2008, 611 p.

MILL, J.S., Essays on Some Unsettled Questions of Political Economy, Kitchener, Batoche

Books, 2000, 118 p.

MULLER, S., ZOURIDIS, S., FRISHMAN, M. and KISTEMAKER, L. (eds.), The Law of the Future

and the Future of the Law, Oslo, Torkel Opsahl Academic EPublisher, 2011, 744 p.

MULLERAT, R. (ed.), Corporate Social Responsibility, Alphen aan den Rijn, Kluwer Wolters

International, 2011, 570 p.

88.

NANDA, S. and WARMS, R.L., Cultural Anthropology, Belmont, Cengage Learning, 2014,

416 p.

NATIONAL DEVIANCY CONFERENCE/CONFERENCE OF ECONOMISTS, Capitalism and the rule of law,

London, Hutchinson of London, 1979, 200 p.

NORTH, D., Structure and Change in Economic History, Cambridge, Cambridge University

Press, 1982, 240 p.

OSTROM, E. and AHN T.K. (eds.), Foundations of Social Capital, Glos, Edward Elgar

Publishing, 2003, 590 p.

PATTERSON, D. (ed.), A Companion to Philosophy of Law and Legal Theory, Oxford,

Blackwell Publishers, 1999, 602 p.

PAUL SCHOLTEN INSTITUUT, Recht en liefde, Nijmegen, Ars Aequi Libri, 1996, 119 p.

PEIL J. and VAN STAVEREN I. (eds,), Handbook of Economics and Ethics, Cheltenham,

Edward Elgar, 2009, 605 p.

PETIT, J., Interest, Antwerpen, Story-Scentia, 1995, 261 p.

POINCARE, H., La science selon Henri Poincaré: La science et l’hypothèse – La valeur de la

science – Science et method, Paris, Dunod, 2013, 528 p.

POSNER, R.A., A Failure of Capitalism, Cambridge, Harvard University Press, 2009, 346 p.

POSNER, R.A., Frontiers of Legal Theory, London, Harvard University Press, 2001, 453.

POUND, R., Interpretations of Legal History, New York, Macmillan, 1923, 171 p.

POUND, R., Outline of Lectures on Jurisprudence, Cambridge, Harvard University Press,

1920, 156 p.

POUND, R., Social Control Through Law, New Jersey, Transaction Publishers, 2002, 139 p.

89.

RAJAN, R.G., Fault Lines, Princeton, Princeton University Press, 2010, 270 p.

SACK, P. and ALECK, J. (eds.), Law and anthropology, Aldershot, Dartmouth Publishing,

1992, 527 p.

SANDEL, M., What money can’t buy. The Moral Limits of Markets, London, Allen Lane,

2012, 244 p.

SCHILTZ, H., Handboek van financiële wetgeving, Antwerpen, Standaard

Wetenschappelijke Uitgeverij, 1974, 196 p.

SCHILTZ, H. and LEYSEN R., Handboek van financiële wetgeving, Antwerpen, Kluwer, 1984,

191 p.

SCHILTZ H. and LEYSEN, R. Inleiding tot de financiële wetgeving, Antwerpen, Kluwer

rechtswetenschappen, 1988, 188 p.

SCHMIDHEINY S. and THE BUSINESS COUNCIL FOR SUSTAINABLE DEVELOPMENT,

Changing Course: A Global Business Perspective on the Development and the

Environment, Massachusetts, MIT Press, 1992, 374 p.

SCHRANS, G. and STEENNOT, R., Algemeen deel van het financieel recht, Antwerpen,

Intersentia, 2003, 484 p.

SCHWAGER, J.D., Market sense & Market nonsense, How the markets work (& how they

don’t), New Jersey, John Wiley & Sons, 2012, 343 p.

SHILLER, R.J., Finance and the Good Society, Princeton, Princeton University Press, 2012,

288 p.

SHKLAR, J.N., Legalism, Law, Morals and Political Trials, Cambridge, Harvard University

Press, 1964, 246 p.

SMITH, A., The Wealth of Nations, Blacksburg, Thrifty Books, 2009, 629 p.

90.

SPINELLI A. and ROSSI, E., “For a Free and United Europe. A draft manifesto” in A. SPINELLI

and E. ROSSI (eds.),The Ventotene Manifesto, The Altiero Spinelli Institute for Federalist

Studies, 1988, 67 p.

SPITZECK, H., PRISON M. and DIERKSMEIER C. (eds.), Banking with Integrity. The Winners of

the Financial Crisis?, Hampshire, Palgrave Macmillan, 2012, 212 p.

STERNBER, T., Die Methode: Aus: Allgemeine Rechtslehre, Volume I, Leipzig, Walter de

Gruyter, 1904, 209 p.

STUYCK, J. and STRAETMANS, G., Financiële diensten en de consument, Deurne, Kluwer

rechtswetenschappen, 1994, 295 p.

TARULLO, D.K., Banking on Basel: The Future of International Financial Regulation,

Washington, Peterson Institute, 2010, 310 p.

TILLEMAN, B., BENOIT-MOURY, A., CAPRASSE O. and THIRION N. (eds.), De oprichting van

vennootschappen en de opstartfase van ondernemingen, Brugge, die Keure, 1252 p.

TILLEMAN B. and DU LAING B. (eds.), Bankcontracten, Brugge, die Keure, 2003, 555 p.

TILLEMAN, B. and VERBEKE, A. (eds.), Actualia Vermogensrecht, Brugge, die Keure, 2005,

778 p.

TISON, M., De interne Markt voor bank- en beleggingsdiensten, Antwerpen, Intersentia

rechtswetenschappen, 1999, 979 p.

TISON, M., VAN ACKER C. and CERFONTAINE, J. (eds.), Financiële regulering op zoek naar

nieuwe evenwichten. Volume II. Financiële markten, financiële transacties, prudentieel

recht, Antwerpen, Intersentia, 2003, 510 p.

THE ONATI INTERNATIONAL INSTITUTE FOR THE SOCIOLOGY OF LAW, European ways of law.

Towards a European sociology of law, Portland, Hart Publishing, 2007, 393 p.

91.

TURNER, A., Economics after the crisis: objectives and means, Cambridge, The MIT Press,

2012, 128 p.

TURNER, A., HALDANE, A., WOOLLEY, P., WADHWANI, S., GOODHART, C., SMITHERS, A., LARGE, A.,

KAY, J., WOLF, M., BOONE, P., JOHNSON, S. and LAYARD, R., The Future of Finance: the LSE

Report, London, LSE, 2010, 289 p.

UNITED NATIONS DEVELOPMENT PROGRAMME, Human Development Report 1990, New York,

Oxford University Press, 1990, 189 p.

VAN DAMME, M., Elementen van legisprudentie. Bedenkingen bij het moderne

wetgevingsbedrijf, Gent, Larcier, 242 p.

VAN DEN BERGH, R. and CAMERSACA, P., European Competition Law and Economics: A

comparative perspective, Oxford, Intersentia, 2001, 598 p.

VAN DEN STEEN, L., De effectenrekening, Antwerpen, Intersentia, 2009, 844 p.

VAN FREDERIKSLUST, R.A.I., ANG, J.S. and SUDARSANAM, P.S., Corporate Governance and

Corporate Finance, Oxon, Routledge, 2008, 757 p.

VAN GERVEN, D., Beginselen van Belgisch Privaatrecht, IV, Rechtspersonen, I,

Rechtspersonen in het Algemeen, Verenigingen, Stichtingen & Publiekrechtelijke

Rechtspersonen, Mechelen, Kluwer, 2007, 688 p.

VAN GERVEN, W., Beginselen van het Belgisch Privaatrecht, I Algemeen deel, Antwerpen,

Scriptoria, 1973, 519 p.

VAN GERVEN W. and LIERMAN, S., Beginselen van het Belgisch Privaatrecht, I Algemeen

deel, Veertig jaar later, Privaat- en Publiekrecht in een Meerlaagd Kader van

Regelgeving, Rechtsvorming en Regeltoepassing, Mechelen, Kluwer, 2010, 603 p.

VAN HOECKE, M. (ed.), Algemene Rechtsbeginselen, Antwerpen, Kluwer, 1991, 403 p.

VAN HOECKE, M. and BOUCKAERT, B., Inleiding tot het recht, Leuven, Acco, 2001, 389 p.

92.

VOLANTE, R., “Standard Contract Terms and Financial Contracts” in H. COLLINS (ed.),

Standard Contract Terms in Europe: A basis for and a Challenge to European Contract

Law, Alphen aan den Rijn, Kluwer Law International, 2008, 277-289.

VON JHERING, R., Der Zweck im Recht, Volume 1, Leipzig, Breitkopf & Härtel, 1877, 1286

p.

WEYNS, W., ESTOR, A. and GEUDENS, S. (eds.), Marktisme. Kritiek op het berekenende

samenleven, Kalmthout, Pelckmans, 2013, 244 p.

WOLFSON M.H., and EPSTEIN G.A. (eds.), The Handbook of the Political Economy of

Financial Crises, New York, Oxford University Press, 2013, 784 p.

X, Essays by Ralph Waldo Emerson, Pennsylvania, The Electronic Series Classics, 2014,

333 p.

ZAMBONI, M., The policy of law, Portland, Hart Publishing, 2007, 210 p.

ZWEIGERT K. and KÖTZ, H., An Introduction to Comparative Law, Oxford, Oxford University

Press, 1998, 714 p.

ARTICLES

ARROW K. and G. DEBREU, G., “Existence of an Equilibrium for a Competitive Economy”,

Econometrica 1954, 266-290.

AWREY, D., BLAIR, W. and KERSHAW, D., “Between Law and Markets”, LSE Law, Society and

Economy Working Papers 2012, 1-43.

BALLEGEER, D., “Basel III: The New Capital Regime for Banks”, BFR 2011, 147-169.

BECHT, M., BOLTON P. and ROELL, A., “Why bank governance is different”,

Oxf.Rev.Econ.Pol. 2011, 437-463.

BLAIR, M.M., “Financial Innovation, Leverage, Bubbles and the Distribution of Income”,

Rev.Banking & Fin.L. 2010, 225-311.

93.

BUTLER, H.N., “The Contractual Theory of the Corporation”, Geo.Mason U.L.Rev. 1989, 99-

123.

BYTTEBIER, K., “Nieuwe gedragsvoorschriften voor financiële bemiddelaars - Analyse van

de bepalingen bedoeld in de artikelen 26 tot en met 30 van de Wet van 2 augustus 2002

betreffende het toezicht of de financiлle sector en de financiële diensten”, T.Fin.R. 2002,

265-292.

CARROLL, A.B., “Corporate Social Responsibility. Evolution of a Definitional Construct”,

BAS 1999, 268-295.

CAUWENBERGE, A., “Het reglementaire landschap voor de Europese financiële markten na

MiFID”, BFR 2008, 63-91.

COENE, L., “The Belgian Banking Sector in 2020”, Bank Fin. 2012, 17-20.

COFFEE, J., “What went wrong? An Initial Inquiry into the causes of the 2008 Financial

Crisis”, JCLS 2009, 1-22.

COLMANT, B., “Quelles banques belges dans 10 ans”, Rev.banc.fin. 2012, 51-55.

COVAL, J., JUREK J. and STAFFORD, E., “The Economics of Structured Finance”, J. of

Econ.Persp. 2009, 3-25.

DE RAYMAEKER, D., “MiFID: wordt de modale belegger er beter van?”, BFR 2008, 23-27.

DEAKIN, S. and KONZELMANN, S.J., “After Enron: an age of enlightenment?”, Organization

2003, 583-587.

DESMETZ, H., “Why Regulate Utilities?”, J.L. & Econ. 1968, 55-65.

ENRIA, A., “Banking Supervision: Towards an EU Single Rulebook”, Bank Fin. 2012, 3-10.

94.

FAMA, E.F., “Efficient Capital Markets: a Review of Theory and Empirical Work”, JF 1970,

383-417.

ESPOSITO, R.T., “The Social Enterprise Revolution in Corporate Law: A Primer on Emerging

corporate entities in Europe and the United States and the Case for the Benefit

Corporation”, Wm. & Mary Bus.L.Rev. 2013, 639-714.

GARDNER, J.A., “The Sociological Jurisprudence of Roscoe Pound (Part 1)”, Vill.L.Rev.

1961, 1-26.

GOLDEN, B., “The courts, the financial crisis and systemic risk”, CMLJ 2009, 141-149.

GORLÉ, F., “Grondslag van de rechtsgeschiedenis”, RW 1981, 849-884.

GREENFIELD, K., “From Metaphor to Reality in Corporate Law”, Stanford Agora 2000, 59-

68.

HAMOIR, O., “Belgian Banking – Quo Vadis?”, Bank Fin. 2012, 21-24.

KINGSBURY, B., KIRSCH, N. and STEWART, R.B., “The Emergence of Global Administrative

Law”, Law & Contemp. Probs. 2005, 15-62.

LIPSHAW, J., “Sarbanes-Oxley, Jurisprudence, Game Theory, Insurance and Kant: Toward a

Moral Theory of Good Governance”, Wayne L. Rev. 2004, 1083-1114.

MACEY, J.R., “An Economic Analysis of the Various Rationales for Making Shareholders the

Exclusive Beneficiaries of Corporate Fiduciary Duties”, 21 Stetson L.Rev. 1991, 23-44.

MERRICK DODD JR., E., “For Whom are Corporate Managers Trustees?”, Harv.L.Rev. 1932,

1145-1163.

MILLON, D., “Shareholder Primacy in the Classroom After the Financial Crisis”, J.Bus. &

Tech.L. 2013, 191-195.

MILLON, D., “Shareholder Social Responsibility”, Seattle U.L.Rev. 2013, 911-940.

95.

MILLON, D., “Theories of the Corporation”, Duke.L.J. 1990, 201-262.

MOLONEY, N., “Reform or revolution? The financial crisis, EU financial markets law, and the

European securities and markets authority”, Int'l & Comp. L.Q. 2011, 521-533.

OJO, M., “BASEL III and Responding to the Recent Financial Crisis: Progress made by the

Basel Committee in Relation to the Need for Increased Bank Capital and Increased

Quality of Loss Absorbing Capital”, 2010, http://ssrn.com/abstract=1680886, 1-15.

OMAROVA, S.T., “Wall Street as Community of Fate: Toward Financial Industry Self-

Regulation”, U. Pa. L. Rev. 2011, 411-492.

PEREZ, C., “Finance and Technical Change: a Long-term View”, AJSTD 2011, 10-35.

PISTOR, K., A Legal Theory of Finance, J.Comp.Econ. 2013, 1-52.

POLLICINO, O., “Legal Reasoning of the Court of Justice in the Context of the Principle of

Equality Between Judicial Activism and Self-restrain”, GLJ 2004, 283-317.

POSNER, R.A., “Theories of Economic Regulation”, Bell J.Econ. 1974, 335-358.

POUND, R., “The Case for Law”, Val.U.L.Rev. 1967, 202-214.

POUND, R., “The Scope and Purpose of Sociological Jurisprudence [Continued]”,

Harv.L.Rev. 1911, 140-168.

REISER, D.B., “Benefit Corporations – A Sustainable Form of Organization?”, Wake Forest

L.Rev. 2011, 591-608.

SCHWARCZ, S.L., “The Governance Structure of Shadow Banking: Rethinking Assumptions

about Limited Liablity” http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2364126, 1-

39.

SJÅFJELL, B., “Regulating Companies as if the World Matters: Reflections from the Ongoing

Sustainable Companies Project”, Wake Forest L.Rev. 2012, 113-134.

96.

TRIBE, L.H., “The Curvature of Constitutional Space: What Lawyers Can Learn from

Modern Physics”, Harv.L.Rev. 1989, 1-39.

TURNER, A., “Credit creation and social optimality”, IRFA 2012, 142-153.

VERDIER, P.H., “The Political Economy of International Financial Regulation”, Ind.L.J.

2013, 1405-1474.

WYMEERSCH, E., “The New European Financial Regulatory Bodies”, Bank Fin. 2012, 28-39.

Newspaper articles

DUKE, Simon. 2013. “It’ll be torture for Barclays bosses”, The Sunday Times, London, 10

March 2013, 12.

BRUMMER, Alex. 2009. “Enter a daredevil”, The New Statesman, London, 14 September

2009, 22.

JENKINS, Patrick. 2014. “Barclays chief loses credibility over bonuses”, Financial Times, 5

March 2014, www.ft.com/intl/cms/s/0/df0bfeac-a485-11e3-9cb0-

00144feab7de.html#axzz31SH2BJYA.

Speeches

BROWN, Gordon. 2008. “The Global Economy” speech, Reuters Building, London, 13

October 2008.

GEENS, Koen. 2013. “Twintig jaar na datum: een nieuwe Bankwet voor een solide

banksector” speech, NBB Financieel Forum, Brussel, 20 January 2013.

97.

GREEN. Stephen. 2009. “Banking in the process of chance Conference” speech, European

Central Bank, Frankfurt, 8 September 2009.

GREENSPAN, Alan. 2004. “Capitalizing Reputation” speech, Financial Markets Conference,

Federal Reserve Board, Georgia, 16 April 2004.

HALDANE, Andrew. 2012. “Occupy Economics, ‘Socially useful banking’” speech, Bank of

England, London, 29 October 2009.

JORION, Paul. 2014. “Downstream rather than upstream, woe to us!” speech,

Studiedag Corporate governance in de financiele sector: uitdagingen na de financiele

crisis en impact van de nieuwe bankenwet, Stewardship of Finance Chair, Vrije

Universiteit Brussel, 25 April 2014.

LAMBERT, Richard. 2011. “In search for Growth” speech, CBI Centre Point, London, 24

January 2011.

TURNER, Adair. 2010. “Economics, conventional wisdom and public policy” speech, King’s

College, Cambridge, 8 October 2010.

TURNER, Adair. 2009. “Mansion House” speech, City Banquet, London, 22 September

2009.

Personally conducted interviews

AL MAZROUI, S.H. 2013. “Socially useful financial instruments and activities” interview, 3

April 2013 (Appendix II).

DEVA, N. 2013. “Socially useful financial instruments and activities” interview, 10 April

2013 (Appendix III).

TURNER, A. 2013. “Socially useful financial instruments and activities” interview, 12

February 2013 (Appendix I).

98.

Websites

www.bankensplitsen.be/.

http://citywire.co.uk/new-model-adviser/pfeg-and-hsbc-team-up-for-financial-teacher-

training-tool/a705248.

www.fairfin.be/actueel/nieuws/2013/10/bank-basics-ii-bankiers-aan-het-roer-

democratie-overboord.

http://ineteconomics.org/conference/berlin/dirk-bezemer-creating-socially-useful-

financial-system-35.

Other

Barclays PLC, Annual Report 2013.

VAN DER ELST, C., “Corporate Governance in banks: mind the differences?” PowerPoint

Presentation.

JORION, Paul. 2013, “Lord Adair Turner: socially useful and socially useless financial

activities” VUB Stewardship of Finance lecture 7, 25 November 2013.

99.

APPENDIX I

INTERVIEW WITH LORD ADAIR TURNER (6 February 2013)

My Questions (concerning my thesis)

Q1. In you Mansion House speech and in your LSE report on the future of

finance you discuss the social usefulness of financial activities. But I

haven't managed to find a source where your explanation of this concept

goes beyond and I quote: "delivering economic value at the collective

social level”. Could you expand on this and could you give an example of

socially useful type of credit and a socially useless type of credit as you

distinguish types of credit according to their origins and functions?

“It is easier to expand by talking about things that would not be socially valuable. I think

the background piece of economic theory which is the basic economic theory of

competitive markets, claiming that provided we have open competition between

providers of whatever there is - restaurants, cars, hotel stays, etc. - and provided you

have consumers who know what they are doing (and provided the consumers are well

placed to decide to buy product A or product B), it is fundamental to the propositions of

the free market economy - as set out in some iconic articles on the nature of perfect

markets and competitive equilibrium like that of Kenneth Arrow and Gerard Debreu

[‘The existence of an equilibrium for a competitive economy’, 1954] - that in those

circumstances things will be delivered which deliver consumer value (apart from that it

raises issues of distribution, who will end up rich and who will end up poor). These

propositions tell us that people producing restaurants that people ought to visit only

survive because people want to eat their meals there; the consumers value the product

(meal) as much as the costs of production of that product (meal) etc.

The point for financial services to be made is that there are a set of reasons that just

don’t meet the definition of what gives us the confidence they deliver social value (hence

it is easier argue what is socially useless). They are the following:

1. The first example situates in the context of tax which was in the news recently:

tax avoidance or tax structuring does not make the economy bigger; it simply

redistributes money from the generality of tax payers to the person who manages

100.

to avoid the tax but takes up very important real resources of very clever people.

As long as these tax avoidance schemes obey by the law they are legal but they

clearly do not make the economic cake any bigger they just divide it differently.

What is more, since very clever people divide the cake differently it marginally

makes the economic cake even smaller! The economic cake reduces in size to the

extent these very clever people could be doing something else [with their talents,

something much more valuable, socially useful]. Tax avoidance is not adding

social value and therefore not socially useful. In finance we find that if the clever

people are not engaging in tax avoidance games they [enjoy] the games of

regulatory arbitrage.

2. Regulatory arbitrage games/structuring: in order to control finance we impose

capital and liquidity requirements on finance (regulation) in order for banks not to

go bankrupt and not to produce financial instability downsides. Regulatory

arbitrage games entail finding clever ways of structuring something financially so

that it looks as if one particular firm requires less capital without changing its

economic function. This results in firms just looking better to the outside world

than they actually are. Such an activity is by definition not making the economic

cake any bigger hence is not positively socially valuable. It is at best a zero sum

game, actually even a negative sum game in my opinion, since very clever people

are involved [who can use their talent for better and bigger things] as I

mentioned before. Quite a lot of fancy product innovation is involved in tax

avoidance and/or regulatory structuring at its core.

3. Retail consumer products level: consumers of financial products/services are not

well placed to know whether they really want to buy something or not since they

don’t really understand what they are buying (unlike when deciding to go to a

restaurant or to buy a car or when purchasing a holiday). When going to a

restaurant nobody apart from us is better placed to decide to which restaurant we

want to go (what gives us pleasure). When deciding to buy financial products or

services e.g. asset management service (wanting to invest ones’ savings), one

has very little ability to know what is really good asset management and what is

not. When a consumer buys the same asset services, he can’t know whether he

is buying something good or bad since he can’t test it (he will only find out in 30

years after the purchase) and unlike the producers is in a weak position, lacking

101.

the knowledge of what is good or not. Hence the financial services industry, take

asset management again, has a wide degree of freedom to charge for things that

are not value added. That can be illustrated as following: the vast majority of

active asset management is sold at 1.5% or 2% with no value added to the end

consumer over and above what they would have got if they just simply bought the

index. If the consumers bought the index rather than paying 50 basis bonus

points of that active asset management, by the time the consumer would retire

the pension would be 25% bigger than when he bought the expensive asset

management due to all the charges it brings along the way. The result is a zero

sum activity as the asset manager ends up a lot richer, the individual saver

(consumer of the asset management) poorer and the size of the economic cake

not [a piece] bigger. This is a good example of when looking for a zero sum

activity, one is actually looking at a negative sum activity since, like I said, very

clever people are devoting real resources. There are many such examples where

the zero sum relationship is never a zero sum relationship but a negative sum

relationship. Many will agree on this.

4. Trading activity: this example is more contentious and difficult in economic

theory. What is the real value of trading activities? Basically a theory in economics

says that if we provide a liquid market for equities or bonds people might be

willing to save who otherwise won’t (since they save in equities). The theory

suggests that market making and providing liquidities in trading activities enables

the system to help in the identification of the price of different securities and this

helps the allocation of capital in turn. The basic proposition of this theory is that

although there is indirect economic value, many ordinary people when looking at

a lot of these financial activities ask themselves the question of ‘what the hell’

their social usefulness actually is; they do not see the indirect economic

advantage. Mostly this indirect economic advantage is however present as it

results in the efficient allocation of a lot of activities like the allocation of capital,

the allocation of financial benefits and in making saving decisions because of the

liquidity. [Summarized, a regular person does not see the value of the indirect

economic advantage of helping the efficient allocation of capital and savings.]

An argument, quite contentious, provided by economists in the likes of Keynes is

that of the possibility that trading activities grow well beyond the level that is

required to perform that function and thus become zero sum or rather negative

102.

sum activities. One reason for the negative sum being the use of real resources

and another reason the creation of financial instability is in a market, against

which non-market makers have to hedge by paying (using real resources again)

the market makers and manage the instability. Paul Woolley, LSE, explores these

particular issues.

[In conclusion] social value derives from economic activities, into which real resources

are committed and which are producing products of which the consumption by ends

consumers is valued at least as much as the resources that were put in them. Useless

activities have no such positive effect. They just have a zero sum redistribution effect

from one category of people to another or rather a negative sum effect because

resources are devoted to the support of this zero sum activity.

It is tricky to say which type of credit is socially useful. There are deep underlying issues

here, e.g. ‘how much credit is valuable?’ One side of the story is that basically the

fundamental existence of banks enables us to borrow. The value added of banks is that

otherwise (in the case if there were no banks) you would have individuals with business

ideas constrained by their own wealth or by more expensive loans from individuals they

would personally know who would decide rather than in the case of a load of people

pooling their savings as deposits in banks. This would be more expensive and less

efficient as banks employ intelligence officers to screen the business ideas.

The other end of the story: In the pre-crisis period in America, there were many

subprime borrowers in mortgages who could not afford mortgages unless on the

presumption that the crisis would continue. Mortgages which supported that presumption

were packages up in complicated structured CDOs in ways which made it difficult for

people (buyers) to understand what they were buying and what where the risks involved,

e.g. unsuspected pension funds. This activity generated by markets made the economic

cake no bigger but considerably smaller as the chain produced erroneous effects. It

encouraged somebody to borrow to buy a house, who could not afford to borrow and as a

result being kicked out of that house. Simultaneously it also encouraged people to buy

these securities that turned out to be worthless/useless. To know more on this topic I

suggest you read ‘The Big Short: Inside the Doomsday Machine’ by Michael Lewis, which

tells you the 2006-2008 story of CDOs and credit default SWAPs. Summarizing there was

a group of securities being created, built on mortgages. A group of people were taking

bets on it and other groups of people wanted to shorten it. After a while more people

103.

wanted to shorten it than there were securities available so synthetic CDOs were created

with the sole purpose to enable betting from the other side. Hence additional to the

already problematic flow of securities of real mortgages (based on bad mortgages) a

superstructure of invented securities was created providing the possibilities to make bets

on either that the US mortgages market would or would not fall. Hence there were

activities almost in the form of bets.

The problem here is that if people want to engage in betting for themselves for fun and

go to Las Vegas to do it that is their right. However when these betting activates (pure

betting) might contain a possibility of affecting the national economy when very clever

people are involved (country game) [they situate in a completely different category,

beyond that of a private right] they entail negative social value, not making the economy

more efficient.

A Poker game is between us but when individuals linked to institutions make more and

more bets with negative social value the chances increase of a bank going bankrupt

which is dangerous for society as a whole hence no social value added.”

Q2. Should we go back to Quakerism banking like in the case of the

Handelsbanken, meaning returning the role of steward of the society back

to financial institutions, and for instance abolish derivatives that are linked

to other financial products or values?

“We should do a number of things. First we need to recognize that financial institutions,

especially a bank is a different type of company than a normal company (like a car

company for instance). This is due to the fact that when a car company is in trouble it

does not bring down a financial system or an entire economy, it is rather a problem for

the company’s share holders and executives. This simple example will illustrate that:

When a car company in the car industry goes bankrupt, its competitors are pleased; they

celebrate as life becomes easier. In the case of bankruptcy of a bank the competitors

however are terrified because of the contagion effect. Boards of banks should recognise

that bankruptcy of a bank or when a bank is simply not doing well brings a downside for

society. We need to care of that downside. Banks as custodians of institutions of private

interests as well as custodians of pure private interest enterprises are different therefore

they should recognise the danger [they carry within them] and lean against this danger

104.

otherwise these institutions will proliferate socially useless activities and even fraudulent

activities!

For further information on this subject I suggest you read ‘Fault Lines’ by R.G. Rajan

(2009). Especially the chapter describing that in all capitalist market activities people try

to make money from themselves. In most areas however the danger that the activities

can lead to socially useless activities is contained by the fact that producers are in a

physical relationship with their customers (e.g. consumers eat the meal directly in the

restaurant and in case of car manufacturing the producers of cars drive the cars

themselves and want to be proud). Digital screens in a trading room give the impression

that trading is no more like a computer game and therein there are no ethics; the only

thing that matter is winning, increasing those numbers on the screen. The nature of

finance is immaterial, it just consists out of number and screens. There is a need for

ethical concepts. How does one get ethics therein?”

Questions posed by Prof. Jorion (concerning his column in Le Monde)

I would like to let Lord Turner know that I see a striking resemblance between his way of

dealing with economic theory and that of Lord Keynes before him in that he cherry picks

what is correct to him and abandons without any regret what he regards as erroneous.

Q1. I would ask him what line he draws - as I believe he does - between "an

oversimplified interpretation of a correct economic theory" and "an

erroneous economic theory"?

“The answer is both. I mean you need to have or rather be aware of both. An example

of oversimplifications or misinterpretations can be seen in the article I mentioned before

by Kenneth Arrow and Gerard Debreu which talks about competitive equilibrium. It

establishes this proposition – derived from a beautiful mathematical model - that the free

flow of competition will produce a Pareto optimum (a central concept in neo-classical

economics). However you need to shift distribution as you cannot make everybody better

off. This shifting of money from one group of people to another cannot be done in reality,

only in theory.

In order to understand the limits of perfect markets you need to look at the real world

and see how different markets are differently incomplete and differently imperfect. Some

authors take representations of theoretically precise theories and assume these theories

105.

tell us directly things about the world which they don’t. Policy makers also have the

tendency to think that representations of theoretically precise mathematical models apply

in reality

Please read my book ‘Economics after the Crisis’. Chapter 2 will tell you exactly why

some financial activities are not financially useful and Chapter 3 will answer this question

directly as it answers the question of whether the economics was wrong or simply

oversimplified.”

Q2. I would like to ask him also - as he was adamant to draw the distinction

himself – what the distinction is between a "socially useless financial

activity" and an "economically useless financial activity"?

“Not sure I would [make that distinction]. As I was using the term, I was thinking of the

concept of social optimality as used by an economist. Hence assuming there would be

perfectly informed consumers who can decide whether these restaurant meals are good

for them. Of course this raises issues on another level concerning whether consuming too

much and getting fat is good or not. Primarily I was using the term socially useful in the

sense of contributing to a social optimality as understood by economists.”

Q3. There was some disarray in public opinion when he talked about "socially

useless financial activities" but how his suggestion was received that the

transmission from one generation to the next of residential real-estate at

inflated prices was a typical example of an "economically useless financial

activity"?

“[The audience] did not get into that. Simply I talked about a whole lot of credit being

generated which only increases the prices of houses without any new houses being built

and how bad that is.

The vast majority of comments concerning socially useless activities came from the City.

The City of London people were horrified that I questioned the trading activity and

regulatory arbitrage structuring, completely Ignoring the fundamental issues – and these

are fundamental issues- of how many debt contracts do we want in countries like the UK

and does the UK have too much credit in its system?”

106.

APPENDIX II

INTERVIEW WITH AMBASSADOR ALMAZROUI (3 April 2013)

My Question (concerning my thesis)

Q1. Do you believe banking can be socially useful, and if so, what do you

understand under socially useful banking?

“Community banking was not the norm. I studied International Relations which had

nothing to do with finance and ended up in banking by incident. This way life taught me

to apply whatever you have studied to your career. I used what I learned to benefit my

new job, thinking the bank might be able to use it. At the end of the day financial

institutions can do anything out of conviction of for innovation reasons as a marketing

strategy: Financial institutions can use anything as a marketing tool!

I did a lot of research during my studies and took a lot of different courses like

development and economics (a typical possibility in American Universities) which helped

in the battle of overcoming the knowledge gap between finance and IR when I was

unleashed into banking, after my studies.

During my time in the financial institution I realized I was in an organisation which lent

itself and accepted my strategy (based on IR studies) into something it was not used to

do. Normally financial institutions are inward looking (cold/profit making), that is their

classical way. They are more concerned about making money than anything else.

Financial institutions also want to grow. One way of growing is by answering the question

of how to market themselves to the community. In order to be innovative financial

institutions are willing to be creative in their marketing tools (so they can create a new

tool). This is where my IR experience came in handy.

Let me continue by making a couple of points. The first point concerns how the financial

institutions market themselves. Through advertising, corporate loans, credit cards, etc.

Also, by creating awareness through media and street advertising. Sponsorship plays a

role too. Sponsorship can be created: the financial institution can sponsor a conference

or give sponsorship to a sporting event (e.g. racing, tennis). This is socially useful.

107.

If one wants to be more creative one can actually come up with more ideas. You can

compare the different ways of financial institutions serving the community in developed

countries to those developing:

- Developed: are very aware of the community services (have foundations

dedicated to it etc. Also, see what Barclays is doing for example.)

- Developing: have not got to that stage yet. (of course there are exceptions)

There was a scheme round 1998 circulating the financial institutions in the UAE much

alike the one in Canada introducing socially useful financial activities. It was a movement

that postulated the concept of anything you sponsoring (7 things) to be considered as a

contribution/support to the community:

1. Sponsoring sports (market strategy: reach out to community as ways of

advertisement while also helping the community)

2. Sponsoring education (scholarship and schools: target section of community that

will appreciate it)

3. Nurturing environment, create awareness of its importance (enlighten people

about the dangers of pollution or send staff to clean beaches or to plant trees.

This might not be iconic but people appreciate it)

4. Supporting charity (people appreciate it)

5. Culture (contribute to the development of art for instance).

6. Creating a foundation to support disease containment

7. Financing small business

You can do more but these 7 are the main ones.

Luck is involved in the scheme circulating in the right financial institution. HSPC for

instance funds environmental preservation around entire world network. Because they

look to the environmental problems from a scientific point of view they really meet the

needs of the issues. They don’t just give money. They investigate and deliver the right

solution to the problem. E.g. in Mexico they deal with environmental problems differently

than in Hong Kong.

The second point is to not to forget that financial institutions are located in the private

sector. They will not help community unless their chairman believes in supporting the

community or for marketing reasons. However either way is good as the result is the

108.

same (maybe if one believes in the project, the results will be a bit better): End result is

the same to market whether you believe it or not (motives do not change the socially

useful outcome).

Another thing worth remembering is that there is a budget (e.g. from March to April).

Combining the sponsorship of both the sport area and handicap area (e.g. Paralympics)

delivers double appreciation from the community for a lower price: The budget needs to

be distributed accordingly to objectives. Sometimes there is not enough. The Emirate

Airlines for instance are owned by the government (public sector). They are active all

over the world. But how much they give apart to sport remains a question.

For the public sector, you are their main concern/responsibility. Private sector only cares

for you from marketing perspectives/values. However as said before: No matter what the

motivation is, the result is the same.

The third point concerns the specific example of the 7th socially useful financial activity:

the financing of small businesses (small and medium). This is very effective. You can ask

yourself why it is so effective.

Well, imagine you have no ability to borrow from a financial institution to establish your

project – you are not credit worthy yet. The following scheme is followed: the financial

institution puts capital towards your project, structures your project, and sets the rules of

its contribution in a way your project will function (e.g. free loan or payable loan with low

interest). The financial institution structures the financing of your project the way it

wants meaning no or little interest or they might send you to a company they own which

can advice you.

The power to set conditions belongs to the financial institution. They might say

something in the likes of: we will finance a creative project, if proposed by a national

only because we are concerned about them. Financial institutions also put their own rules

in amount given and deadline for repayment after assessing the project value.

A committee does this assessing. It has its own scheme on how to evaluate whether you

are going to repay or not. The financial institution sets the rules of the financing scheme.

It will give you money but only after evaluation: “you want to establish a factory and you

want to want to manufacture handbags? Well, these are the conditions: we need to know

your idea and understand the business plan, we need to see that you know how to

109.

manage and maybe even ask you to put a percentage down towards your own project as

a contribution so it won’t be an easy ‘come and go’. If you put in equity, that will be our

comfort that you are serious.” This example is to show that a financial institution needs

evidence to give away money.

Technical aspects are important to make the financing of a business successful. Apart

from money (soft financial aid) a financial institution might give some support by

teaching the entrepreneur how to establish a business, how to make and manage a

business plan and might also give creative ideas and marketing support. Without it they

might not be able to sell. This is a socially useful financial activity.

Example of marketing support: the financial institution might say to the market, “it is a

very noble scheme: why don’t you also pitch in? Become part of it.” This creates added

value as the financial institution puts more elements in than just money. It cares about

what happens after the finance has been given.

If a financial institution wants it money to succeed for young people: do it this way. This

is the right path to create to an entrepreneur with creative ideas.

Concluding, once a financial institution succeeds in financing a project for an

entrepreneur it receives satisfaction that it contributed to the development of the

community. This is a valuable, virtuous and ethical way whilst also receiving back its

money. If the money is lost it is lost in the grand way of things (macro economy) and at

least the financial institution has given somebody an opportunity from which he or she

learned a lot.

Let me give you a couple of examples. In Bangladesh and Egypt small amounts of money

are given to ladies to buy pesticides (micro schemes). Another example can be situated

in the Western World. The Western World consists roughly speaking for 70% to 90% out

of small and medium companies which run on loans from financial institutions. The big

media companies in turn like Chrysler live of these small and medium companies as they

buy parts from them instead of having to manufacture them themselves (e.g. wheels).

Hence small businesses have a durable life and the financial institution receives

satisfaction as money is given to a good cause: keeping the economy running and people

earning (in turn consuming).”

110.

APPENDIX III

INTERVIEW WITH MEP DEVA (10 April 2013)

My Question (concerning my thesis)

Q1. Do you believe banking can be socially useful, and if so, what do you

understand under socially useful banking?

“I know for a fact that banks used to be very socially useful, now that you mention those

words, throughout history. I think it is just a recent phenomenon that banks became so

selfish. I wonder whether that phenomenon somehow correlates with secularisation. I

cannot imagine that a devoted Catholic would run a bank like these individuals did who

were responsible for the crisis.

Here in the European Parliament many initiatives are taking place to reverse this process.

Some of course will be more effective than others. For example, there are talks to split

traditional banking and trading banking. These ideas are also discussed in America. I

think such ideas will be very effective if they become realized.

So socially useful banking to me would mean taking care of society like any religious

person or organisation ought to do anyway. It is very difficult to do this taking our

current culture that lacks ethics and morals into account. Right now I cannot think of a

way of making this happen without getting futuristic. But I do want to say that if you had

hit me with this question 10 years ago I would laugh and would have probably suggested

that you would become a novelist. After this crisis I think your question is actually very

relevant. I think you are on to something."