Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/145451
Authors: 
Haar, Brigitte
Year of Publication: 
2016
Series/Report no.: 
SAFE Working Paper Series 141
Abstract: 
This paper is the outcome of a related broader project, exploring the explanatory power of the Legal Theory of Finance, which proposes a new institution-based analytical framework for the analysis of phenomena of financial markets. One of its most important theoretical assumptions, the legal construction of financial markets, is highlighted by the example of the private creation of money by structured finance products in this paper. Further implications can then be shown referring to pari passu clauses and collective action clauses, which are both exhibit a differential application of these legal rules according to the hierarchical status of the respective market participant, and can therefore endanger sovereign debt restructurings. Legal instruments to avoid this are briefly explored. An example of another key role of the law in crisis that is the task to resolve the tension between market discipline and financial stability is exemplified by the regulation of the OTC derivatives market and proposals of effective loss-sharing among CCPs. Related questions about the significance of legal rules to ensure financial stability are raised in the analysis of minimum capital requirements under Basel III.
Subjects: 
law and finance
financial stability
financial contracts
structured finance
asset-backed securities
pari passu clauses
collective action clauses
otc derivatives markets
central counter parties
Basel III
coco bonds
JEL: 
G38
K12
K20
K22
N20
O16
Document Type: 
Working Paper

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