The tail that wags the dog The effects of secured credit on access to debt financing and financial stability

In this dissertation, I focus on the legal reforms in insolvency law and banking regulations, introduced under the Capital Markets Union Action Plan and the Banking Union initiatives, respectively. I delve in particular into the EU Directive on Preventive Restructuring Frameworks, and the Capital Requirements Regulation. The key question explored in this dissertation is: How do changes to the position of secured creditors, following from legal reforms in insolvency law and banking regulations, affect corporates’ access to debt financing and financial stability?
The analyses in this dissertation suggests that the changes to the position of secured creditors, following from legal reforms in insolvency law and banking regulations not only fail to facilitate creating a diverse funding climate and also fail to increase financial stability, but also generate negative unintended consequences for corporates’ access to debt financing and financial stability. A thorough analysis of banks’ position as secured creditors, their governance and the implications of their position for other creditors is essential to strike a balance between managing risk, enabling growth and providing a stable access to finance. Against this background, I provide a number of recommendations that can be taken into consideration in legislative deliberations in the context of the Preventive Restructuring Directive and the Capital Requirements Regulation to foster a vibrant funding climate and to increase financial stability.