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See detailDigital Euro: opportunity or (legal) challenge?
Lupinu, Pier Mario UL

in Ianus: Diritto e Finanza (2021), (22), 27

In the euro area today, there are two ways in which the central bank provides money to its economy. The first consists in the issue of physical banknotes, while the second is expressed through the ... [more ▼]

In the euro area today, there are two ways in which the central bank provides money to its economy. The first consists in the issue of physical banknotes, while the second is expressed through the electronic accreditation of deposits on current accounts that credit institutions hold at the central bank. In the last five years, following both the increase in the digitalisation of the modern economy and the example of hegemonic economies (such as China), the possible introduction of a new form of currency to provide a safe and stable mean of payment to citizens of the euro area has had the power to create a growing interest towards such ambitious solutions. As a result, in the very near future we could experience a different way in which money works. We refer to the uncharted world of central bank digital currencies (CBDC). While projects for the creation of central bank digital currencies are booming all around the world, such interest is driven by various reasons that will be analysed in this paper, including the need to react to private initiatives for the creation of cryptocurrencies and stablecoins and, an increasing demand for fast and interconnected digital financial instruments and products. In the euro area, even if the debate for the creation of a Digital Euro has recently started, the ECB has proven to be already engaged in investigations, public consultations, and discussions with focus groups with the aim to provide European citizens, firms, and intermediaries with a “public” payment instrument suitable for a new digital era. In this framework, the role of a Eurosystem central bank digital currency will be analysed from a legal perspective. First, apart from the abovementioned reasons leading to the creation of a CBDC, it will be crucial to examine the structure and design of the Digital Euro, together with its objectives and the needs of its users. Consequently, while investigating on the legal framework which will permit the introduction of this digital currency, through a light review of similar models adopted (or in adoption) by other countries, we will seek to assess whether legal issues might hinder the realisation of this project or its actual implementation, especially concerning the impact on monetary policy, the international role of the euro and the banking sector. [less ▲]

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See detailThe impact of Brexit on “bail-inable” liabilities under English law
Lupinu, Pier Mario UL

in Queen Mary Law Journal (2021), (1), 22

Several years have passed since 29 March 2017, the date when the United Kingdom (UK) triggered Article 50 of the Treaty on European Union (TEU). This date has become well-known for paving the way to ... [more ▼]

Several years have passed since 29 March 2017, the date when the United Kingdom (UK) triggered Article 50 of the Treaty on European Union (TEU). This date has become well-known for paving the way to multiple legal and political issues, most of which depend on the agreement setting the conditions for the future relations between the European Union (EU) and the UK. In reference to the resolution of a credit institution established in the EU in a state of imminent crisis, Brexit might negatively affect its shareholders and bondholders who were called upon to contribute by absorbing losses and recapitalising the bank through the bail-in instrument. In particular, when the bail-in converts or writes down liabilities previously established under English law. To date, the EU legal framework for the resolution of credit institutions envisages a provision for the direct recognition of liabilities governed under any of the EU Member States’ law. This means that, due to Brexit, English law liabilities are no longer directly recognised at the EU level. However, the Bank Recovery and Resolution Directive (BRRD), one of the pillars of the EU legislation relating to resolution, leaves to each EU Member State the duty to require financial entities to include “resolution-proof” clauses in the contracts establishing such liabilities or, alternatively, to conclude a binding agreement with the relevant third country. This creates issues concerning both the recognition of English law liabilities established pre-BRRD and to post-BRRD liabilities not compliant with the contractual requirement. By analysing the EU and UK legal frameworks, this paper aims to address possible solutions to ease a future resolution procedure involving the use of the bail-in instrument towards English law liabilities. The purpose is to ease both the determination of the Minimum Requirement for own fund and Eligible Liabilities (MREL) and the resolution process for the relevant authority in charge of the resolution procedure, since an orderly bail-in of those problematic liabilities could improve the effectiveness of the instrument and the success of the whole resolution procedure. [less ▲]

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See detailExploring Governance Issues between the SRB and the ESM in the Use of the Common Backstop
Lupinu, Pier Mario UL

E-print/Working paper (2020)

To date, the resolution of the Banco Popular Español, being the first and only resolution case in the euro area, has had the “benefit” of bringing to light several shortfalls of this crisis management ... [more ▼]

To date, the resolution of the Banco Popular Español, being the first and only resolution case in the euro area, has had the “benefit” of bringing to light several shortfalls of this crisis management system. Back then, thanks to the sale of business, the need of the use of the Single Resolution Fund (SRF) has been avoided, prompting criticism on whether the fund had sufficient means to overcome a major widespread crisis. During the period elapsed from the last financial crisis, the euro area banking sector has built capital and liquidity buffers, which were aimed at protecting them for future shocks. Although it is now widely accepted that crises are of a cyclical nature, new risks and the high interconnectivity of today’s economic activities brought an unexpected crisis due to the current pandemic. The consequences of this unprecedented event in modern history had severe effects to the worldwide economy, mostly for the boundless block of labour activities, which caused severe losses for households, enterprises and governments that consequently affected the financial intermediation function of the banks. Concerning the European Stability Mechanism (ESM), the current pandemic has had the effect to put temporary on hold the discussion on the revision of the ESM Treaty, including its role as a Backstop to the SRF, so that the Mechanism could experience a new role through the ESM Pandemic Crisis Support. In such a framework, this paper aims to bring back the attention to the unfinished path in the establishment of the Common Backstop by addressing an important element of risk, namely its decision-making process. The main aim is to explore possible governance issues, which could hamper a timely and effective use of the Common Backstop, in the case that the SRF would be depleted and no alternative funding sources would be available. [less ▲]

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See detailThe Flow of Information Among Authorities Involved in the Banking Union’s Resolution Procedure: The Case of the SRB and the ECB
Lupinu, Pier Mario UL

E-print/Working paper (2020)

The flow of information is vital for the smooth functioning and certainty of the successful outcome of a resolution procedure during resolution planning and execution. As a result, the exchange of ... [more ▼]

The flow of information is vital for the smooth functioning and certainty of the successful outcome of a resolution procedure during resolution planning and execution. As a result, the exchange of relevant information has become highly influential in current debates. This article will focus on the exchange of information between the Single Resolution Board (SRB) and the European Central Bank (ECB). Firstly, the Authorities decided to arrange the rules for sharing information bilaterally in the form of a Memorandum of Understanding (MoU). While this framework of cooperation and exchange of information between the SRB and the ECB constitutes an obligation under Article 30(7) of the Single Resolution Mechanism Regulation (SRMR), it was drafted in the non-binding form of an MoU. The general purpose of an MoU is to establish the basis for cooperation and convergence of intentions. Such foundations aim to strengthen the resolution procedure by joining forces to obtain more accurate and complete data with better coordination of tasks and resources in order to achieve the most solid result possible within a tighter timeframe. [less ▲]

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