M Konrad Borowicz
Assistant Professor of Financial Regulation, Tilburg University
In this paper, I propose a new theory of the economic effects of creditor rights. The theory, which I refer to as Law and Macro-Finance, aims to take into account the effects of the protection of creditor rights on liquidity and leverage—the two variables central to the emerging economic paradigm of macro-finance. The central descriptive claim of Law and Macro-Finance is that strong creditor rights exacerbate the procyclicality of liquidity and leverage and increase the volatility of the economic cycle. The principal normative implication of Law and Macro-Finance is that the strength of creditor rights should be designed in a countercyclical fashion. Through a countercyclical design of creditor rights, policymakers should encourage creditors to lend into a credit bust but discourage them from lending into a credit boom. Recognizing the practical challenges of countercyclical adaptations of the strength of creditor rights, this paper suggests an alternative time-invariant regulatory framework implementing strict limits on leverage on all actors of the economy, from sovereigns, through banks, firms to households. The effective implementation of such a framework requires adjustments to a broad range of laws beyond banking and financial law, including consumer, constitutional and international law.
Law and Macro-Finance of Corporate Debt
Revise and resubmit, Journal of Corporate Law Studies
The literature on macro-finance identifies several factors that drive credit, including monetary and behavioral factors. However, it does not explicitly consider the role of law as a driver of credit. This article considers the effects of the protection of corporate creditor rights through bankruptcy law on the corporate credit cycle. It argues that the effects of such protections on corporate credit are different in different parts of the economic cycle. During a period of economic growth, credit is readily available, so the effect of protection of creditor rights in that phase of the cycle could be to create or exacerbate a credit boom. In contrast, in a recession, the protection of creditor rights allows them to enforce their claims against distressed debtors, thereby potentially exacerbating a credit bust that usually characterizes a recession. On the normative side, this article suggests that legal decisionmakers should seek to discourage creditors from lending to highly leveraged companies in a credit boom. If strong legal protections for creditors exacerbate the boom and bust phases of the credit cycle, then, ceteris paribus, the right of creditors lending into a credit boom should be weaker. This article also discusses legal theories under U.S. corporate bankruptcy law that legal decisionmakers could leverage to weaken the right of creditors lending into a credit boom, including deepening insolvency and equitable subordination.
The Mechanisms of Loan Market Efficiency
Forthcoming, Review of Banking and Financial Law
This article develops an account of the mechanisms of efficiency of corporate loan markets or the secondary markets in which loans made to corporate borrowers are traded. In our account: 1) professionally informed trading incorporating information about the quality of the loan terms offered to borrowers, is the primary source of corporate loan market efficiency, and 2) antitrust law is among the principal policy tools that can foster loan market efficiency by policing market participants' efforts to restrict activist loan market investors from accessing information in the loan market. The main objective of fostering loan market efficiency is to allow activist investors to incorporate information about the erosion of the quality of the underwritten terms into loan prices and prompt corrections in mispricing in primary markets thereby contributing to the tightening of the terms subsequently offered in primary markets. From a policy perspective, efficient loan markets can help alleviate the concerns around the erosion of underwriting standards that have become widespread in recent years.
Capital Markets Law Journal, December 2020
This article proposes a rule of contractual interpretation for regulatory contracts defined as contracts 1) used by a large number of market participants, 2) subject to limitations on deviation, and 3) designed with market problems (such as negative externalities) in addition to transactional problems (such as transaction costs) in mind. The rule states that the outcome of the interpretation of regulatory contracts must not be inconsistent with the objectives of the regulatory framework applicable to the market in which the contract is used. The article suggests that the reliance on that rule is normatively justified in cases where the regulatory objectives are clearly defined and particularly when the alternative outcome is to void the contract or its provision. By adopting the regulatory rule for contract interpretation, courts can preserve the autonomy of private regulatory regimes created through contracts without sacrificing public policy objectives. Several examples of the application of the rule to the interpretation of selected provisions of the ISDA Master Agreement and the ISDA Credit Definitions are discussed.
Publications in Polish
Państwo i Prawo, 5/2010
Wśród wielu interesujących przykładów wzajemnego oddziaływania prawa konkurencji i prawa własności intelektualne na uwagę zasługuje rozwinięcie się we wspólnotowym prawie konkurencji złożonego mechnizmu licencjonowania technologii, jakim są porozumienia łączenia i rozpowszchniania technologii (ang. technology pools). Ustanowione w 2003 r. Wytyczne Komisji w sprawie stosowania art. 81 (3) Traktatu do kategorii porozumień o transferze technologii podejmują się stworzenia prawnokonkurencyjnego mikro-reżimu, który - uznając wymierne korzyści związane z tą postacią transferu technologii - stworzyłyby warunki dla jego zafaunkcjonowania; z drugiej zaś dysponował narzędziami, które zapwenią, że nie zakłóci to konkurencji na wspólnym rynku. Niniejszy artykuł służy wprowadzeniu do modelowej analizy porozumień łączenia i rozpowszechniania technologii w reżimie europejskiego prawa konkurencji.