Newsletter-21

Legal Liability of Banks as Trustworthy Institutions* Att. Eda Uludere Introduction A bank is an institution of trust whose fields of activity, founda- tion, management, internal auditing systems, financial reporting, eq- uity, capital sufficiency ratios and auditing is determined by Banking Law numbered 5411 (“Banking Law” or “BL”). The legal liability of banks for their actions are determined within the scope of several leg- islations, the first of which is the general provisions enshrined in the Turkish Code of Obligations numbered 6098 (“TCO”). In addition, the Turkish Commercial Code numbered 6012 (“TCC”) sets forth under Art 18(2) that all merchants shall act prudently in all matters relating to their commercial activities. The second basis for banks’ stricter legal liability as merchants arises from this provision. Banks, as institutions which generate public trust, shall act with a level of prudence that is required specifically in their field of activity. In other words, such gen- eration of trust in the public eye results in the obligation of banks to act with even more prudence when compared to a common merchant. However, the primary reason behind the trustworthiness of banks is the fact that they operate under state supervision, and their activities are subject to certain permissions granted by the Banking Regulation and Supervision Agency (“Agency”) in accordance with Art. 6 of the Banking Law. The trustworthiness of banks usually results in the ag- gravation of their legal liabilities; however, to the contrary may also be the case. The Notion of Trustworthiness Even before the conclusion of a contract, a relation of trust is formed between the (at the time, “future”) parties. This relation finds * Article of February 2016