Download publication

Working Paper

The vulnerability of Europe’s small and medium-sized banks

Stress tests show significant weaknesses in Europe's small and medium-sized banks. Strengthening the banking system is important to achieve a sustainable recovery because it will revitalise credit to the healthier segments of the economy. But instead of emphasising bank recapitalisation, we believe the task is to shrink the banking sector to a healthier core.

By: and Date: July 15, 2015 Finance & Financial Regulation Tags & Topics

We study the vulnerability of 130 banks directly supervised by the European Central Bank’s Single Supervisory Mechanism. Illustrative stress tests using banks’ balance sheet data reveal that significant stress prevails in the euro area’s smaller and medium-sized banks, many of them located in southern Europe. The banks we identify as stressed also have performed substantially worse on the stock market. The vulnerable banks are typically hobbled by non-performing loans to European businesses.

Strengthening the banking system, therefore, is important to achieve sustainable recovery because it will revitalise credit to the healthier segments of the economy. But instead of emphasising bank recapitalisation, as in past years, we believe the task is to shrink the banking sector to a healthier core.

View comments
Read article Download PDF More on this topic

Policy Brief

PB 17 01

Making the best of Brexit for the EU27 financial system

The EU27 needs to upgrade its financial surveillance architecture to minimise the financial market fragmentation resulting from Brexit and the corresponding increase in borrowing costs for firms.

By: André Sapir, Dirk Schoenmaker and Nicolas Véron Topic: Finance & Financial Regulation Date: February 8, 2017
Read article More on this topic

Blog Post

MariaDemertzis1 bw
sd-12177-_0028bea2-web

Bruegel conference discusses strategies to tackle Europe’s NPL crisis

Bad loans and private sector debt distress are widely acknowledged to hold back investment and growth in Europe. It was good, then, to hear ECB Vice-President Vítor Constâncio call for a comprehensive strategy to address the non-performing loans problem at an event hosted by Bruegel last week.

By: Maria Demertzis and Alexander Lehmann Topic: Finance & Financial Regulation Date: February 7, 2017
Read article More on this topic More by this author

Blog Post

Silvia Merler

The strange case of the MPS capital shortfall

Italy's banking saga continues with the announcement that beleaguered MPS may need to find an additional €3bn. What exactly has changed, and what does it say about ECB decision making?

By: Silvia Merler Topic: Finance & Financial Regulation Date: December 27, 2016
Read article Download PDF More by this author

Policy Contribution

pc-23-12European Parliament

The impact of the legal and operational structures of euro-area banks on their resolvability

Following the financial crisis, the question of how to handle a big bank’s collapse has come to the fore. This Policy Contribution evaluates the obstacles to resolvability that the legal and operational structures of the large euro-area banks could pose to the European Union’s new resolution regime.

By: Dirk Schoenmaker Topic: European Parliament, Finance & Financial Regulation, Parliamentary Testimonies Date: December 6, 2016
Read article Download PDF More on this topic More by this author

External Publication

cover-ep

The impact of the legal and operational structures of euro-area banks on their resolvability

This paper evaluates the obstacles to resolvability that the legal and operational structures of the large euro-area banks could present, assuming that it is possible to liquidate smaller and medium-sized banks through a transfer of the relevant activities to other banks.

By: Dirk Schoenmaker Topic: Finance & Financial Regulation Date: December 6, 2016
Read article Download PDF

Working Paper

cover

Reform of the European Union financial supervisory and regulatory architecture and its implications for Asia

This Working Paper reviews recent developments in the EU’s financial supervisory and regulatory architecture with a view to draw out lessons for regional financial regulatory architecture in Asia.

By: Zsolt Darvas, Dirk Schoenmaker and Nicolas Véron Topic: Finance & Financial Regulation, Global Economics & Governance Date: November 17, 2016
Read article More on this topic More by this author

Opinion

Nicolas Véron

Breaking the vicious circle

Nicolas Véron argues that EU banking union can only be complete if the vast amounts of domestic sovereign debt held by many banks are reduced

By: Nicolas Véron Topic: Finance & Financial Regulation Date: October 21, 2016
Read article More on this topic More by this author

Blog Post

sd-12177-_0028bea2-web

ECB bank supervision cannot tackle debt restructuring single-handedly

The European Central Bank has begun to tackle a key symptom of banking sector fragility with its proposed guidelines on banks’ management of non-performing loans (NPLs). But detailed targets for the reduction of NPLs and prescriptions for the internal governance and management of distressed assets also represent a new style of more intrusive supervision. For the ECB to succeed in bank rehabilitation, a macroeconomic scenario should guide the deleveraging process, capacity needs to be built, and governments will need to support a more holistic restructuring effort.

By: Alexander Lehmann Topic: Finance & Financial Regulation Date: October 13, 2016
Read article Download PDF More on this topic

Policy Contribution

pc-17-16

Fiscal capacity to support large banks

This Policy Contribution outlines a fiscal cost scenario for the recapitalisation of large banks during a severe systemic crisis.

By: Pia Hüttl and Dirk Schoenmaker Topic: Finance & Financial Regulation Date: October 3, 2016
Read article Download PDF More on this topic

Policy Contribution

cover

What are the prerequisites for a euro-area fiscal capacity?

In this Policy Contribution, Maria Demertzsis and Guntram B. Wolff discuss three progressive steps for strengthening the fiscal framework at the euro-area level. These lead to less interference in national fiscal policymaking thanks to a more credible no-bailout clause, increased risk sharing and different degrees of provision of euro-area-wide public goods and fiscal stabilisation.

By: Maria Demertzis and Guntram B. Wolff Topic: European Macroeconomics & Governance Date: September 9, 2016
Read article More on this topic More by this author

Blog Post

Schoenmaker pic

Losing “EU passport” would damage City of London

If the UK cannot secure a “Norway” deal and stay within the internal market, the UK will lose the passporting rights which make London attractive as a financial centre. The macroeconomic fall-out from Brexit has also damaged the performance of banks and insurers.

By: Dirk Schoenmaker Topic: Finance & Financial Regulation Date: June 28, 2016
Read about event More on this topic

Past Event

Past Event

European banking supervision: the first eighteen months

After its first 18 months, how has the SSM affected the European banking system?

Speakers: Mario Nava, Dirk Schoenmaker, Nicolas Véron, Pieter Verheugd and Guntram B. Wolff Topic: Finance & Financial Regulation Location: Bruegel, Rue de la Charité 33, 1210 Brussels Date: June 14, 2016
Load more posts