Limited Liability, Strategic Default and Bargaining Power

Balatti, Mirco; López-Quiles, Carolina

doi:10.2139/ssrn.3682550

Cited by 1 publication

(2 citation statements)

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“…Even if Yeager (1974) at that time found a non-threatening equilibrium for financial stability had been reached, only a decade later the 1980'ies savings and loan crisis in the US was a marked demonstration of the bank-consumer-government instability that has since haunted western economies. It was followed by the 1990' Scandinavian banking crisis and above all of them, the subprime crisis (Balatti and López-Quiles 2021) and the subsequent global financial crisis of the 2010's eventually leading to the collapse of several European economies and the European sovereign debt crisis, that has to see final resolve for some countries 16 . 16 One needs only view the financial stability report of the ECB, the may 2021 financial stability report even ackowledges it as a headline, that: "Euro area What then, is the cause of rising consumer bankruptcies?…”

Section: Personal Bankruptcymentioning

confidence: 99%

“…In this respect, the later results of (Agarwal and Chomsisengphet 2009) take preference over (Agarwal et al 2005). Balatti and López-Quiles (2021) looked at the function of limited liability on mortgages. Known in the US a non-recourse, and in Europe as datio in solutem, and in popular terminology as giving back the keys to the house, the ability under classic US mortgages to return a house to the creditor without personal liability for uncovered debts under the mortgage in effects works similarly to limited liability.…”

Section: Leniency and Personal Bankruptcy 41 Impact Of Leniencymentioning

confidence: 99%

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Personal Bankruptcy Systems in the EU – Measuring Leniency

Krenchel¹

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Since the Second World War, there has been a massive credit expansion to consumers, also in Europe. With increased credit to consumers comes inevitably increased risk of a negative credit event, in many cases due to change of life events, such as loss of job, sickness, divorce, and death of an income earner in a family. This in turn, in Europe, has led to a regulatory wave to introduce personal bankruptcy regimes for consumers and entrepreneurs. Academic research on personal bankruptcy has distinguished between firstly discussions on personal bankruptcy regulations in themselves and are usually focused on the controversial impact thereof on society, economy, financial markets, entrepreneurship, and labour supply. Secondly ad distinctly, limited research has tried to comparatively analyse personal bankruptcy regimes across jurisdictions, in order to access their degree of leniency. Armour and Cummings (2008) evaluated the systems of various chosen countries (England, US, Germany, France, Canada) and White (2007) contrasted the bankruptcy policies based on the trade-off between providing insurance to debtors against punishing default. Walter, G. (2020) described key tenets between US and Austrian models, such as Austria and Hungary. The methodology of measuring leniency has been limited to one-time legislative changes or some elements of, in particular, the US personal bankruptcy system. • • The research carried out here, builds on previous studies, but expands both the number of countries in the study and the number of indicators to create a composite index of personal bankruptcy legislations. • • The aim of the research is to construct a composite index, which includes the characteristics and elements of EU personal bankruptcy systems in order to compare • their leniency, and to compare and rank the personal bankruptcy legislative systems of all EU countries from the leniency aspect, to analyse the differences and similarities.1 • • The result is a calculation of the composite index for 25 EU countries and the US as a benchmark, validated results, and a ranking of the countries according to the leniency of their personal bankruptcy systems. The analysis is revolving around four hypothesised explanatory factors by analysing the index scores by: grouping based on leniency characteristics, region, law origin, and the age of the regime. • • It is concluded that the systems show high heterogeneity and cannot be clustered by leniency characteristics, region or legal origin assumed based on former studies. However, there is a strong association between leniency and the age of legislation. • • Results indicate that personal bankruptcy policies in the EU are usually launched as creditor-friendly and are later shifted to a more lenient direction. • • The research underpins the more modern regulatory regime adopted by the EU in terms of the Fresh Start Directive that is currently being rolled out in member states, but would criticize the EU initiative for being insufficient in as far as it is only obligatory for an entrepreneurial fresh start, and hence insufficient as it only recommends extending the framework to consumers. • • The research also points to the need to keep revising national regulatory frameworks to account for the maturation of the personal bankruptcy process, in terms of making them more lenient, as seems to be the experience across Europe. • • Finally, the research underscores the need for further research in the area.

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Section: Personal Bankruptcymentioning

confidence: 99%

Section: Leniency and Personal Bankruptcy 41 Impact Of Leniencymentioning

confidence: 99%