Download publication

Policy Contribution

A macro approach to international bank resolution

As regulators rush to strengthen banking supervision and implement bank resolution regimes, a macro approach to resolution is needed that considers both the contagion effects of bail-in and the continuing need for a fiscal backstop to the financial system. This can be facilitated through the completion of a banking union in which the European Stability Mechanism (ESM) becomes the fiscal backstop to the euro-area banking system.

By: Date: July 10, 2017 Topic: Finance & Financial Regulation

In the aftermath of the Great Financial Crisis, regulators have rushed to strengthen banking supervision and implement bank resolution regimes. While such resolution regimes are welcome as a means to reintroduce market discipline and reduce the reliance on taxpayer-funded bailouts, the effects on the wider banking system have not been properly considered.

A macro approach to resolution is also needed, which should consider the contagion effects of bail-in and the continuing need for a fiscal backstop to the financial system.

For bail-in to work, it is important that bail-inable bank bonds are largely held outside the banking sector, which is currently not the case. Stricter capital requirements could push them out of the banking system.

The organisation of the fiscal backstop is crucial for the stability of the global banking system. Single-point-of-entry resolution of international banks is only possible for the very largest countries or for countries working together, including in terms of sharing the burden of a potential bank bailout. The euro area has adopted the burden-sharing approach in its banking union. This Policy Contribution recommends completing banking union.

Other countries have taken a stand-alone approach, which leads to multiple-point-of-entry resolution of international banks headquartered in those countries and contributes to fragmentation of the global banking system.

View comments
Read article Download PDF More by this author

External Publication

European Parliament

Sovereign Concentration Charges: A New Regime for Banks’ Sovereign Exposures

Europe’s banking union has been central to the resolution of the euro-area crisis. It has had an encouraging start but remains unfinished business. If it remains in its current halfway-house condition, it may eventually move backwards and fail. EU leaders should seize these opportunities

By: Nicolas Véron Topic: European Macroeconomics & Governance, European Parliament Date: November 17, 2017
Read article More on this topic More by this author

Podcast

Podcast

The future of Capital Markets Union

Bruegel senior scholar Nicolas Véron speaks with Steven Maijoor, the chair of ESMA, about the future of the Capital Markets Union (CMU), and of the EU's financial supervisory architecture.

By: The Sound of Economics Topic: Finance & Financial Regulation Date: November 16, 2017
Read article Download PDF

Policy Contribution

A ‘twin peaks’ vision for Europe

The organisation of the European Supervisory Authorities (ESAs) is based on a sectoral approach with one ESA for each sector, with separate authorities for banking, insurance and securities and markets. But is this sectoral approach still valid? This Policy Contribution outlines a long-term vision for the supervisory architecture in the European Union.

By: Dirk Schoenmaker and Nicolas Véron Topic: European Macroeconomics & Governance, Finance & Financial Regulation Date: November 13, 2017
Read article More on this topic More by this author

Blog Post

Euro-area enlargement: a new opening?

8 of the EU27 have not yet joined the Euro, and progress in euro-area enlargement seems to have stalled. Commission President Juncker wants to give new momentum to the process, but the path is full of political and technical hurdles. The Euro is unlikely to have any new members soon.

By: Marek Dabrowski Topic: European Macroeconomics & Governance Date: November 2, 2017
Read article Download PDF More on this topic

Policy Brief

The time is right for a European Monetary Fund

Two of the banking union’s pillars – common European supervision by the European Central Bank and common European resolution by the Single Resolution Fund – are up and running. But the third, common European deposit insurance, is still missing. The authors propose to design the EMF as part of a broader risk-sharing and market-discipline agenda.

By: André Sapir and Dirk Schoenmaker Topic: European Macroeconomics & Governance Date: October 30, 2017
Read article Download PDF More on this topic More by this author

Policy Contribution

The missing pieces of the euro architecture

What are the remaining fragilities of the Euro architecture? This policy contribution assesses the institutional reforms put in place during and after the crisis and make some proposals for a coherent economic governance framework to make Europe’s monetary union more resilient.

By: Grégory Claeys Topic: European Macroeconomics & Governance Date: October 26, 2017
Read article More by this author

Blog Post

Bailout, bail-in and incentives

Ever since the outbreak of the global financial crisis, more and more rules have been developed to reduce the public cost of banking crises and increase the private sector’s share of the cost. We review some of the recent academic literature on bailout, bail-in and incentives.

By: Silvia Merler Topic: Finance & Financial Regulation, Global Economics & Governance Date: October 23, 2017
Read article Download PDF More on this topic

Policy Contribution

Spotting excessive regional house price growth and what to do about it

Rapidly rising house prices are a well-known source of financial instability. This Policy Contribution examines whether there are regional differences in house price growth within European countries and, if so, whether this warrants more targeted measures to address vulnerabilities.

By: Grégory Claeys, Konstantinos Efstathiou and Dirk Schoenmaker Topic: European Macroeconomics & Governance Date: October 18, 2017
Read about event More on this topic

Past Event

Past Event

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 Date: October 18, 2017
Read article Download PDF More on this topic

Policy Contribution

A European perspective on overindebtedness

The sequence of crisis and policy responses after mid-2007 was a gradual recognition of the unsustainability of the euro-area policy framework. The bank-sovereign vicious circle was first observed in 2009 and became widely acknowledged in the course of 2011 and early 2012. The most impactful initiative has been the initiation of a banking union in mid-2012, but this remains incomplete and needs strengthening.

By: Nicolas Véron and Jeromin Zettelmeyer Topic: European Macroeconomics & Governance Date: September 28, 2017
Read about event

Past Event

Past Event

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 Date: September 28, 2017
Read article Download PDF More by this author

Policy Contribution

Dutch Senate

Europe’s fourfold union: Updating the 2012 vision

The depiction of the euro area/European Union (EU) as a ‘fourfold union’ emerged in the first half of 2012 at the height of the euro-area crisis. 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 economic union has not made material progress, but political union might have advanced further than many observers realize.

By: Nicolas Véron Topic: Dutch Senate, European Macroeconomics & Governance, Finance & Financial Regulation, Testimonies Date: September 21, 2017
Load more posts