Banking law is a subfield of finance law, the branch of law that covers financial law, monetary law, and financial transactions, as well as banking. In banking law, the focus is on transactions between lenders and borrowers, including banks and other lending institutions, and personal, mortgage, and business loan applicants.
In banking law, the main objective for solicitors is to work to reduce the level of risk that clients take on in banking transactions, whether it’s for a client taking out a loan, or a lending institution granting financing to a borrower. This may include negotiating loan terms as well as providing advice and assistance relating to the transaction. This is a highly practical field of law, where the focus is on processes that define and regulate lending transactions.
Matters of Banking Law
Banking law is a complex area, with a number of different subfields.
Acquisition finance involves loans made to corporate borrowers, for the purpose of acquiring other company.
Asset finance involves loans made for the purpose of purchasing valuable assets, either by private individuals or companies. For these loans the asset being purchases serves as the security for the loan.
Bank lending is generally what most people think of when they think of banking law. This involves transactions between lending institutions and banks, and the individuals and businesses that borrow from them. When loans are made by these institutions they are highly structured and have detailed repayment terms and conditions.
Financial services regulation is a branch of banking law that regulates how banks operate, ensuring that lending institutions operate in accordance with financial law.
Project finance is the financing of infrastructure and public services. These are typically long-term financing arrangements, where the loan is paid using money generated by the completed project.
Real estate finance involves loans made to individuals or organisations for the purpose of purchasing land or buildings. In most cases the security on the loan is the property being purchased.
Processes in Banking Law
Banking law primarily concerns the arrangement and maintenance of loans and financial lending agreements. In terms of loans made to private individuals—for instance home mortgages or personal loans—this is a relatively simple process. It gets much more complicated when it comes to arranging loans and financing for business purposes or for very large personal purchases. When large sums of money are involved the risk is higher for both the borrower and the lender, so there’s a lot more work involved in negotiating the terms of the loan, and preparing and finalising the loan.
Loans and financial arrangements
The processes involved in arranging a loan are very different depending on the nature of the borrower and the lender. When a private individual takes out a mortgage or loan, the processes involved are different from those for business loans,. And, it’s different again for specific situations such as when a company looks for investors to provide capital for asset acquisition.
Even so, the basic concepts involved are similar across the board. When any kind of loan is arranged, the onus is on the borrower to prove to the lender that they’re a good financial risk. For instance, when an individual applies for a mortgage they must provide detailed information about their income, expenses, and assets. As the loan amount gets larger, the amount of information that must be provided typically grows, too.
Processing and finalising the loan
Once this information has been supplied, it’s the lender’s responsibility to do what’s called due diligence. Here, the lender spends time verifying all the information supplied by the borrower. For instance, in the case of a home mortgage a bank verifies an applicant’s employment information, checks their credit score, and performs other relevant searches.
A similar process called conditions precedent may also be completed. Here, a solicitor investigates the information supplied by the applicant, and also performs checks to ensure the loan application has gone through all the necessary processes before being authorised by the lender. Once all of these processes are completed the money is made available to the borrower according to the terms of the loan or financial arrangement.
All of these processes—from application to disbursement of the funds—can take anywhere from days to weeks to months, depending on the amount of money in question and the purpose of the loan. When due diligence is performed for acquisition financing and other very large corporate purchases it’s not uncommon for these processes to take a year or more to complete.