The regulations typically aimed at banks are not always clearly defined and are thus not specifically limited to private law. Therefore, a functional approach seems to be more promising, deriving the subject matter from money and currency as its reference points. It is true that authority over monetary policy lies with the European Central Bank. However, banking law in general is part and parcel of the legal system of each of the Member States. Among the private transactions concerned, it is appropriate to distinguish within the very large field between banking law in a narrower sense, which is relevant for the classical banking businesses and which is the focus of this article, and the investment law being shaped by the capital markets law relating to capital markets.
The basic foundation of the traditional banking transaction is the private law contract with some characteristics that are peculiar to the banking contract. For instance, this contract is, as a general rule, significantly characterized by the banks’ standard contract terms. This is a result of the power imbalance between banks and their customers. The latter are specifically taken into account by the legislator in consumer credit protection rules that are based on European standards and form part of the law on personal loan(s). Further aspects of banking law are additionally regulated in detail by European directives, which are primarily supposed to implement the free movement of capital and payments. These affect, in particular, the cross-border provision of financial services, for instance, on the basis of the European passport. The provisions of these services are the basis of transactions specifically processed with banks and their business. Typical examples are the businesses of deposit and credit transfers. Furthermore, in the field of intermediated securities the business of global custody is particularly important. Supplementary auxiliary businesses are the hedging activities, relating to personal security (suretyship (modern law); guarantee, independent), real property security (eurohypothec) and financial collateral.
The core field of private banking law as described above has to be strictly separated from public banking law. The latter does not only include monetary law, but also financial services regulation. Therefore, it extends to the entirety of banking supervision, whose normative foundations, eg the Council Directives on the coordination of banking law, are essential for a European banking market.
The history of banking law is inextricably bound up with the history of banks themselves. Even in the ancient world there were predecessors of today’s banks, namely in Egypt, Greece and Rome. In the 12th century, especially in Italy, there were the first money changers from which the first grand banking houses arose. This development fully unfolded with the separation of commodities trading from financial transactions, taking place, for instance, in Germany in the 18th and 19th centuries. After banks had initially concentrated on bill transactions and short-term banking, as a result of industrialization they also turned to wholesale banking, financing larger industrial enterprises. At the same time, this also marked the growing importance of the banks as a crucial pillar of the national economy.
This emergence of the banking industry is reflected in the evolution of banking law. At first, the use of banks was limited to trade, whereas retail business only played a minor role. That is why legal custom and law merchant primarily applied without an existing banking code. The largest part of the development of banking contract law occurred in the standard contract terms of the banks. In the field of supervision law, regulations started to multiply in the middle of the last century. This was especially true in Germany in the middle of the last century, particularly in the course of the German banking crisis of 1931 with regulations later being displaced by the Council Directives on the coordination of banking law in the course of increasing integration of the European internal market and by further directives for the creation of a European banking market in the course of the 1970s and 1980s.
2. Perspectives of legal development
Even though banking law had its origin in general merchant law, it has now evolved into an independent field of law in its own right. The reasons for this are certain characteristic regulatory problems. From a private law perspective the rules of conduct of banks towards their customers, which have been elaborated in vast case law, are of preeminent importance. These rules are rooted in contract law. English case law categorizes them as implied duties of care and has refined them into information duties under well-defined circumstances. In Germany, case law has also contributed considerably especially in order to develop a fact-based definition of the fundamental information duty. In view of the soaring complexity of modern banking business, the German cases have been grouped according to a heightened need for raising the awareness of customers. These cases do not, however, establish a general comprehensive legal consulting obligation of banks nor a duty to explain or even warn against hazardous deals. Finally, in France too, case law in its various decisions has laid down information duties of banks towards their customers that depend in each individual case on the qualification of the contracting party and his or her influence on the subject and the essence of the contract.
The Europeanization of capital and monetary transactions as well as the increasing percentage of the population becoming involved in a growing range of banking transactions have decisively influenced these needs for protection over the past decades. The information society has thus evolved hand in hand with technical advances in the digital flow of capital, with additional chances and risks entailed. This development has raised the question about a potential right to a current account for everyone, as has already been regulated in France (Art L 312-1 Code monétaire et financier) and is currently under discussion in Germany. As far as the resulting risks are concerned, the European legislation has reacted to the regulatory needs arising from them, so that a customer protection movement (consumers and consumer protection law) has emerged at the European level in the past years.
Notwithstanding legal harmonization in this field, the banking laws of the Member States are at the same time characterized by a variety of different legal sources and solutions to the problems which are found. In the UK the legal situation is marked by multiple legal sources, ranging from general contract law of the common law to the Financial Services and Markets Act 2000, the Consumer Credit Act 1974 and many more Acts of Parliament. In Germany, for instance, the indissoluble interlocking of public and private banking law is almost unmanageable. Finally, in France the Code monétaire et financier forms the main body of rules and regulations for credit institutions and integrates diverse individual regulations. However, the private law aspects of banking law are covered by different laws. The Code civil is, for instance, relevant for the underlying loan agreement. In case of consumer credit and the respective contracting parties that are concerned, the Code de la Consommation (Art L 311-1 and L 311-2) also applies. This situation is exacerbated by the growing number of European directives, so that banking law will in the future continue to be difficult to be defined as a separate field of law but will still be characterized by its increasingly fragmented character. A unified banking code is not in sight.
3. Contract law, regulatory rules and unified law
The first point of reference for the relation between the bank and its customer is the law of contract(s). The agreements entered into with a bank are categorized as service contracts in the majority of legal systems, thus touching upon the general law of obligations and general contract law. Therefore, they are affected by the innumerable harmonizing European directives in the field of contract law.
In general, contract law offers considerable scope for the parties’ private autonomy (freedom of contract). Since there are no specifically designed legal rules for banking contracts, private autonomy in practice usually gives way to the underlying standard contract terms of the banks. These terms are subject to a fair and reasonable test to protect the customer. This test is in part based on the general regulations of the law of standard contract terms. For part of them, however, especially for consumer credit, special regulations apply which are designed for the specific protection needs at issue. Before their harmonization in the Council Directive on Unfair Terms in Consumer Contracts (Dir 93/13, Unfair Contract Terms Directive) a great diversity of rules applied in the Member States. In English law the common law or rather the Banking Code addressing banking transactions ruled. The latter is a voluntary code which determines good business practices for banks regarding their business with retail customers. In Germany there was the Standard Contracts Act of 9 December 1976 or, alternatively, the Instalment Sales Act of 1984; in France there was the Code de la Consommation with general as well as specific rules on consumer credit in Art L 311-1 and Art L 312-1. A unified general fairness and reasonableness test is laid down in the European consumer protection Unfair Contract Terms Directive. Meanwhile, for consumer credit the consumer credit directives are relevant (Dir 87/102, 2008/48).
Individual banking transactions are, however, more specifically regulated in the Member States. The deposit and clearing business as well as bank transfers are ruled by the law of the bank in which they are executed, because in the law of service contracts the law of the place of its characteristic performance applies. Similar to the UNCITRAL model law for international transactions which has existed since 1992 and is available to be implemented into national law, the Credit Transfers Directive of 1997 (Dir 97/5) and the Payment Services Directive of 2007 (Dir 2007/ 64) aimed at implementing the Single Euro Payments Area in the European banking market provide for a unification in the European Community. The former Directive was intended to expedite cross-border bank transfers and make them more transparent. Additionally, the Regulation on cross-border payments in euros (Reg 2001/2560) has set the fees for domestic bank transfers as an upper limit for fees for cross-border bank transfers below €50,000. Finally, the Payment Services Directive of 13 July 2007 is to establish the legal foundations for unified euro monetary transactions to create a single payments area in the European banking market. To this end, the access to the market for payment services is to be guaranteed, the consumer protection level enhanced and equal consumer protection throughout the EU ensured.
The letter of credit is, in contrast, primarily used in overseas trade and provides for the cashless execution of payment transactions between importer and exporter by requiring the issuing bank to pay only on simultaneous presentation of the documents. The unification of the letter of credit is based on the use of the Uniform Customs and Practice for Documentary Credits (UCP Revision 2007) which is set up by the International Chamber of Commerce (ICC). The latter can possibly be classified as standard contract terms – as is the case, for example, according to the leading opinions in English and German law.
Secured transactions, however, which are also tremendously important in banking law, particularly in the field of real property security (eurohypothec) as well as personal security (suretyship (modern law); guarantee, independent), have to be looked at separately from the law of obligations and especially that of service contracts. Only minimal harmonization has been achieved in this field and, therefore, separate accounts of the variety of pertinent regulations have to be referred to.
Ultimately, the contractual relationship between the bank and its customers forms the basis for banking secrecy, whose range is therefore determined by the governing law of the contract. There is some tension between banking secrecy and public interests, such as proper tax collection. The European Interest Savings Directive (Dir 2003/48) has required Member States since 2005 to exchange information or to levy source tax in case of European cross-border interest payments. The capital flight out of a country, which may result from domestic taxation of capital income, is becoming less attractive. In addition, the general interest in the fight against corruption and terrorism may justify a restriction of banking secrecy. The respective rules of the Member States in the field of criminal law (France: Art 378 Code Pénal; Germany: §§ 331, 332 German Criminal Code; case law in the UK in Tournier v National Provincial Bank & Union Bank of England  1 KB 461) are now supplemented by the Third Anti-Money Laundering Directive (Dir 2005/60), specifying rules with regard to the financial observation of politically exposed persons.
With regard to legal enforcement and its mechanisms, attention has finally to be drawn to the importance of the ombudsman as a vehicle of mediation in the banking field. Mediation procedures are common and have been for quite some time, especially in the finance sector in Europe. To name a few examples, one should begin with the ombudsman system of the Swiss insurance companies and the Financial Ombudsman Service of the British Bankers’ Association as well as further models such as the Swiss Bank ombudsman and comparable institutions in Belgium, Denmark, Greece, Ireland, Italy, the Netherlands, Norway and Spain. A demand of the European Commission on the Member States to establish appropriate mediation bodies for conflicts relating to cross-border payments was already included in its recommendation on transparency of banking terms and conditions in financial cross-border transactions of 14 February 1990. The regulation of the ombudsman procedure in the context of directives relevant for the credit economy, such as the European Cross-border Credit Transfers Directive (Dir 97/5), underlines at the same time the procedure’s contribution towards the above-mentioned general development of consumer policy. In 2001 the European Commission created a network which now deals with cross-border complaints for financial services (Consumer Complaints Network for Financial Services—FIN-NET) in order to be able to forward consumer complaints as fast as possible to the responsible mediation body.
Benjamin Geva, Bank Collections and Payment Transactions, A Comparative Analysis (2001); Ross Cranston, Principles of Banking Law (2nd edn, 2002); EP Ellinger, Eva Lomnicka and Richard Hooley, Ellinger’s Modern Banking Law (4th edn, 2006); Klaus J Hopt and Eddy Wymeersch, European Company and Financial Law (4th edn, 2007); Helmut Bruchner, Hans-Michael Krepold and Stephan Steuer, ‘§§ 3, 39’ in Herbert Schimansky and others (eds), Bankrechts-Handbuch (3rd edn, 2007); Mark Hapgood (ed), Paget’s Law of Banking (13th edn, 2007); Christian Gavalda and Jean Stoufflet, Droit bancaire; Institutions, Comptes, Opérations, Services (7th edn, 2008); Martijn van Empel, ‘Retail Payments in the EU’ in Martijn van Empel (ed), Financial Services in Europe (2008) 215; Thierry Bonneau, Droit bancaire (8th edn, 2009); Peter Derleder, Kai-Oliver Knops and Heinz-Georg Bamberger (eds), Handbuch zum deutschen und europäischen Bankrecht (2nd edn, 2009).