On 19th June, we are hosting a members-only workshop on sovereign exposure limits.
The regulatory treatment of banks’ sovereign exposures in the euro area is a significant issue for the possible strengthening of Europe’s banking union project, as a so-called “risk-reduction” counterpart to possible risk-sharing measures such as the creation of a European Deposit Insurance Scheme (EDIS). But unlike for EDIS and other relevant matters, there has been only limited public discussion of how to address sovereign exposures, and discussions held in the ECOFIN format in 2016 have not led to a consensus position. Work on sovereign exposures is ongoing within the Basel Committee, but it is also clear that this challenge has unique features within the euro area.
This event will aim at brainstorming and clarifying issues of feasibility and impact, with a focus on a proposal for sovereign exposure limits that would be uniform across euro-area member states and would not involve capital charges on moderate exposures. We will discuss this both from a prudential perspective, and from the perspective of possible implications for sovereign debt market dynamics and fiscal policy.
This is an invitation-only event open only to Bruegel’s members and to a small number of invited experts.
This event will be off the record.
The Eurogroup faces a difficult choice on Greece — implementing a debt reduction plan drastic enough to make a return to market borrowing possible, or agreeing to a fourth financial assistance programme and continuing to fund Greece at the preferential lending rate.
After the financial crisis, the EU has taken measures to create conditions for a safer banking sector. One of the key measures to do that is the creation of the banking union. How successful has the implementation of the new framework been so far? How will issues in the Italian banking sector be addressed? And how will Brexit change the European banking sector?
Dirk Schoenmaker's chapter in 'The Palgrave Handbook of European Banking', a handbook that collates the expertise and research of leading academic and senior policy makers in the field of European banking
Banks’ sovereign bond holdings were at the heart of the euro-sovereign crisis. The concentration of domestic bonds created a vicious cycle between governments and banks. There are several proposals to end this link, including concentration limits on southern European bonds. We argue for a uniform limit to reduce flight-to-quality effects on northern European bonds. Such a uniform limit would also be more acceptable politically.
The gross general government debt-to-GDP ratios in many advanced economies have reached the highest levels in peacetime history and continue to grow, putting into question sovereign solvency in these economies.
One of the consequences of the global financial crisis has been rapid growth in public debt in most advanced economies. This Policy Contribution assesses the size of public debt in advanced economies and considers the potential consequences of sovereign insolvency.
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
The sovereign debt crisis shook the Euro to its foundations. It soon became clear that there was no mechanism to allow a tidy insolvency of a state wishing to remain inside the euro area. To face future crises, does the EU need a sovereign insolvency mechanism?
Exposures of banks towards sovereigns and vice-versa may be a source of systemic risk but how far can limiting these exposures in fact enhance or rather jeopardise global stability?
Statement prepared for the European Parliament’s ECON Committee Public Hearing of 23 May.
Greek public debt does not look sustainable if the country has to return to market borrowing at the end of the third bail-out programme, but could be sustainable if preferential ESM funding continues in the long-term. Our advice is to offer hope for Greece in the form of delayed fiscal adjustment toward a target of 2.5% of GDP primary balance and adopt various measures to ease the debt burden, for the benefit of both Greece and its official lenders.
Nicolas Véron argues that there are two major oversights in Dr Schuknecht’s anti-European Deposit Insurance outburst, respectively about deposit insurance and about banking union.