A European Credit Law of Non-Financial Institutions for the Benefit of the Banking Union

The lack of harmonisation in the credit laws which exist throughout the European Union, that is to say, the laws which apply to insolvency proceedings and security, undermines the effectiveness of the measures which have been put in place across Europe to prevent further banking crises and damages the credibility of bank balance sheet reviews. Moreover, in addition to the discrepancies which are noted in the laws of different Member States, the application by such Member States of ineffective credit laws makes it difficult to evaluate the loss a bank will suffer in the event of the default of their counterparty. This situation does not allow Member States to adjust satisfactorily the rules on capital requirements to the real counterparty risks to which banks are exposed.There is an urgent need therefore to require Member States to adopt a uniform body of rules which are as effective as possible. Such a harmonisation of the underlying values employed in the calculation of credit risk applicable to financial institutions will, in our opinion, determine the success of the Banking Union, and represents a new challenge for the European Union.Having considered the existing research, both empirical and academic, we advocate the following:• A harmonisation at a European level of the law of security interests based on a functional approach, which would simplify to the greatest extent possible the rules governing the creation and perfection of security;• For large companies, a harmonisation across the European Union of the rules which apply upon insolvency; and• For smaller companies, Member States remain free to apply national law in the event of insolvency, with such cases being dealt with at the level of each Member State