Importance of legislation in times of financial crisis. Selected issues

Abstract

The article discusses the importance of legislation during periods of financial crisis, particularly the impact of adopted legislation on the development of the crisis. The article contains four sections: introduction; law and legislation; regulatory response to crisis; and summary. Section one defines a financial crisis and discusses its cyclical nature, at the same time providing an insight into financial crises in socialist countries. Section two deals with the issues of legislation, law and economics, and the impact of legislation on the economic cycle. Section three gives examples of regulatory responses to crises and their economic impact. Among them there are loan sharking and usury laws, U.S. financial reforms and regulations enacted in the 1930s (the New Deal), and the Polish anti-crisis laws and regulations enacted before World War II, mainly moratory laws providing for debt write-offs in the case of agricultural activity or long-term loans, as well as anti-trust laws. Section three also discusses the Great Recession and the COVID-19 recession, paying particular attention to anti-crisis shields, i.e. laws and regulations enacted to counteract the economic effects of the COVID-19 pandemic, which were mainly of moratory nature and provided for various tax exemptions and reliefs. Section four discusses the extraordinariness of anti-crisis legislation, summarising that it usually is contrary to the basic principles of law, has a phased nature, and constitutes an ad hoc response to a given crisis. Section four also concludes that a government can neither change the course of the economic cycle through legislation nor, as a result, pass laws tackling a crisis.