Thesis Master degree (2013-2014)

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

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
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
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.

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
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:
65
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 HELVÉTIUS
78
. 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
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
77
Oxfordshire, Princeton University Press, 2013, 43.
78
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
87
V. COLAERT, De Rechtsverhouding Financiële Dienstverlener – Belegger, Brugge, die Keure, 2011, 75-76.
88
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
97
98

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
101
ibid.
102
103
ibid.
104
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
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
109
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
113
114
115

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
118
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
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
128
ibid.
129
B. CASU, C. GIRARDONE and P. MOLYNEUX, Introduction to Banking, Essex, Pearson Education, 2006, 181.
130
Other 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
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
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.
141
D. BALLEGEER, “Basel III: The New Capital Regime for Banks”, BFR 2011, 150.
142

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
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
152
153
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
156
157
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
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

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
166
167
168
169
170
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
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’).

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