Beware financial stability – reverse engineering of legal threats in the areas of technology, climate and anti-money laundering
Katarzyna Parchimowicz received funding for this project in SONATA 19 competition organized by National Science Centre, Poland.
Aim of the project:
The aim of this project is to identify and explore legal provisions in areas of technology, AML and climate, that are non-financial stability-oriented (the ones that do not embed financial stability as a regulatory rationale), but nevertheless have caused financial instability. This analysis will constitute an attempt to verify main hypothesis of this work: financial stability should constitute an overarching regulatory rationale, regardless of the primary goal of a given regulatory solution.
Main concept:
After the Global Financial Crisis (GFC) of 2008 many legal measures were introduced with financial stability serving as their rationale. Global standard-setters, the Basel Committee on Banking Supervision (BCBS) and the Financial Stability Board (FSB), confirmed the need to improve financial regulation, and especially, its macroprudential component, which is responsible for stability of the entire financial system, rather than the individual institutions therein. However, what has been omitted is that non-financial stability-oriented rules (the ones that do not embed financial stability as their regulatory rationale) can also threaten financial stability. Recently, several instances of financial instability highlighted that the threats may originate from regulatory areas which are seemingly unrelated to financial stability. In the case of Gamestop, social media (Reddit) and app design (Robinhood) fueled the stock frenzy that resulted in significant volatilities and brought some of the Wall Street players to the brink. The run on Silicon Valley Bank was also exacerbated by social media, even though many sources indicate that the bank was in fact solvent (but lacking in liquidity). As for Credit Suisse, effective anti-money laundering enforcement and misconducts revealed by it, lead to an increase in reputational risk and contributed to its failure and subsequent takeover by UBS. Finally, including climate protection in capital calculation process (green supporting factor in the context of risk weights) proposed by the European Commission and European Banking Authority could also undermine financial stability.
In all of these cases financial stability has been threatened (or will be in case of climate) by non-financial stability-oriented provisions. It seems necessary to analyze said cases in-depth to identify specific regulatory solutions contributing to financial instability and to formulate both case-oriented and general recommendations in this regard, as without financial stability other global goals may not be achievable.
Therefore, the main hypothesis of this project is that financial stability should constitute an overarching regulatory rationale, regardless of the primary aim of a given regulatory solution.
More details:
General information:
- Principal Investigator: Katarzyna Parchimowicz
- Team: Aleksandra Bodzioch (Student Research Assistant), Dominika Kuźnicka-Błaszkowska (Post-doctoral researcher), Robert Rybski (Co-investigator).
- Project duration: 2024-2027
- Granting institution: National Science Centre (SONATA 19)
- Registration number: 2023/51/D/HS5/00077
- Funding: 886.590 PLN
List of research stays:
Parchimowicz K., Visiting Scholar at the Amsterdam Center for Law and Economics, University of Amsterdam, May – June 2025.
List of presentations:
- Rybski R., Assessing the future of the EU Capital Markets Union through legal, factual and cultural perspective. Are we ready for a Gamestop saga in the EU? – European Law and Cultural Diversity conference, organized by The Open University & FernUniversität in Hagen (2 April 2025).
- Parchimowicz K., A Market for Limes: The Information View on Green Banking Regulation (coauthored with Edoardo Martino), 4th Annual Conference on Financial Law and Regulation at the The City Law School City St George’s, University of London, (3 July 2025, London).
