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Working Paper

Are banks affected by their holdings of government debt?

This Working Paper sheds light on the link between sovereign and banking risk in the euro zone. It provides an empirical analysis of the impact of government debt holdings on the stock market performances of the European banks stress tested in the EBA’s July and December 2011 exercises.

By: and Date: March 26, 2012 Topic: European Macroeconomics & Governance

The strong relation between sovereign and banking stress is frequently emphasised, especially since the start of the European sovereign debt crisis. This working paper sheds light on the determinants of the link. It studies the stock market performance and the holdings of government debt of the banks stress tested by the European Banking Authority in July and December 2011. A number of results stand out:

  • Banks’ holdings of the sovereign bonds of vulnerable countries generally decreased during the period December 2010 to September 2011.
  • The average stock market performance of each country’s banks was very uneven during 2011. The long-term refinancing operation (LTRO) had no material effect on banks’ stock market values.
  • Greek debt holdings had an effect on banks’ market values in the period July to October 2011 while after October this effect disappeared. Holdings of Italian and Irish debt had a material effect on banks’ market value in the period October to December 2011. Holdings of debt of other periphery countries, in particular Spain, were not an issue. The July PSI deal did not substantially affect the risk resulting from holdings of debt other than Greek debt.
  • The location of banks matters for their market value. This highlights the need to form a banking union in the euroarea.

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Policy Contribution

Dutch Senate

Europe’s fourfold union: Updating the 2012 vision

In the past half-decade, Europe’s financial union has been significantly strengthened but remains incomplete and is challenged by Brexit. No consensus has been found on fiscal union, and the existing fiscal framework based on administrative control is problematic. Economic union has not made material progress. Political union might have advanced further than many observers realise. This four-part categorisation remains relevant and useful when assessing current and future challenges to European integration.

By: Nicolas Véron Topic: Dutch Senate, European Macroeconomics & Governance, Testimonies Date: September 19, 2017
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What is the role of sustainable finance in reaching the Paris Climate goals? What are the specific proposals towards this goal and which are the challenges facing the implementation of green finance?

Speakers: Peter Blom, Viktoria Dendrinou, Olivier Guersent, Catherine Howarth, Stewart James and Dirk Schoenmaker Topic: Energy & Climate, Finance & Financial Regulation Location: Bruegel, Rue de la Charité 33, 1210 Brussels
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Unfinished business: The unexplored causes of the financial crisis and the lessons yet to be learned

At this event Tamim Bayoumi will present his upcoming book on the financial crisis, showing how the Euro crisis and U.S. housing crash were, in fact, parasitically intertwined.

Speakers: Tamim Bayoumi, Maria Demertzis and Aerdt Houben Topic: European Macroeconomics & Governance, Global Economics & Governance Location: Bruegel, Rue de la Charité 33, 1210 Brussels
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Policy Contribution

Capital Markets Union and the fintech opportunity

Fintech has the potential to change financial intermediation structures substantially. It could disrupt existing financial intermediation with new business models empowered by intelligent algorithms, big data, cloud computing and artificial intelligence. Policymakers need to consider four questions urgently: Develop a European or national fintech market? What regulatory framework to pursue? Should supervision of fintech be exercised at the European level? What is the overall vision for the EU’s financial system?

By: Maria Demertzis, Silvia Merler and Guntram B. Wolff Topic: Finance & Financial Regulation, Innovation & Competition Policy Date: September 15, 2017
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Blog Post

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The aim of the banking union was to break the toxic link between banks and states. One way of achieving this is by increasing cross border banking through mergers and acquisitions. This blog shows that little has changed in M&A activity since the banking union was launched. In fact, we seem to be witnessing a slight re-nationalisiation of banking consolidation.

By: Inês Goncalves Raposo and Guntram B. Wolff Topic: European Macroeconomics & Governance, Finance & Financial Regulation Date: September 13, 2017
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Speakers: Maria Demertzis, Giuseppe Porcaro, André Sapir and Guido Tabellini Topic: European Macroeconomics & Governance Location: Bruegel, Rue de la Charité 33, 1210 Brussels
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Nordea’s move to the Banking Union is no surprise

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By: Dirk Schoenmaker Topic: Finance & Financial Regulation Date: September 12, 2017
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Financial Stability Conference 2017

EU at Crossroads: How to respond to Misalignments in Bank Regulation and achieve a consistent financial Framework?

Topic: Finance & Financial Regulation Location: Berlin, Germany
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Blog Post

Speech by Peter Kažimír at Bruegel Annual Dinner 2017

Peter Kažimír, Slovakia Finance Minister, delivered the keynote speech at Bruegel's Annual Dinner 2017, held on 7 September 2017.

By: Peter Kažimír Topic: European Macroeconomics & Governance Date: September 7, 2017
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Past Event

Past Event

Bruegel Annual Meetings 2017

The Annual Meetings are Bruegel’s flagship event. They offer a mixture of large public debates and small private sessions about key issues in European and global economics. In a series of high-level discussions, Bruegel’s scholars, members and stakeholders will address the economic policy challenges facing Europe.

Speakers: Carlos Sallé Alonso, José Antonio Álvarez Álvarez, Agnès Bénassy-Quéré, Pervenche Béres, Matthias Buck, Grégory Claeys, Zsolt Darvas, Jean Luc Demarty, Maria Demertzis, Anna Ekström, Lowri Evans, Ferdinando Giugliano, Sandro Gozi, Peter Grünenfelder, Reiner Hoffmann, Levin Holle, Kate Kalutkiewicz, Steffen Kampeter, Peter Kažimír, Emmanuel Lagarrigue, Matti Maasikas, Steven Maijoor, Reza Moghadam, Nathalie Moll, James Murray, Johan Van Overtveldt, Julia Reinaud, André Sapir, Dirk Schoenmaker, Mateusz Szczurek, Marianne Thyssen, Jean-Claude Trichet, Reinhilde Veugelers, Nicolas Véron, Ida Wolden Bache, Liviu Voinea, Guntram B. Wolff and Georg Zachmann Topic: Energy & Climate, European Macroeconomics & Governance, Finance & Financial Regulation, Global Economics & Governance, Innovation & Competition Policy Location: Square - Brussels Meeting Centre Date: September 7, 2017
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Blog Post

EU posted workers: separating fact and fiction

After President Macron’s recent tour of Central and Eastern European countries, EU posted workers are getting a lot of attention. However, a major reform of the system is already underway and we should not confuse posted workers with long-term labour migrants. Posted workers are a small part of the labour force, and their labour market impact is likely to be minor.

By: Uuriintuya Batsaikhan Topic: European Macroeconomics & Governance Date: August 31, 2017
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Parliamentary Testimony

European Parliament

Could revising the posted workers directive improve social conditions?

This presentation was delivered in Brussels on 31 January 2017 at a hearing of think-tanks, to advise the European Parliament on the revision of the Posting of Workers Directive.

By: Zsolt Darvas Topic: European Macroeconomics & Governance, European Parliament, Testimonies Date: August 29, 2017
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