Blog Post
Banks have incentives to recapitalize in socially undesirable ways and to hide losses on their balance sheets. Will the comprehensive assessment solve these issues by forcing European significant banks to recognize losses and to recapitalize by issuing new equity instead of deleveraging?
Working Paper
Countries in a monetary union can adjust to shocks either through internal or external mechanisms. We quantitatively assess for the European Union a number of relevant mechanisms suggested by Mundell’s optimal currency area theory, and compare them to the United States.
Working Paper
We compare the structure of the financial sectors of the EU27, Japan and the United States, looking at a set of 23 indicators.
Blog Post
Recently the Dutch government nationalized the Dutch financial conglomerate SNS Reaal. The intervention was the first use of the Intervention Act introduced in the beginning of 2012.
Blog Post
Michel Barnier, European commissioner in charge of regulatory reform, has indicated implementation of the recommendations in the Liikanen report will stop short of ringfencing certain bank activities. The argument is that this could undermine fragile European growth outlook. This viewpoint makes sense.
Blog Post
The Dutch elections have ended in a race between the liberal party (VVD) and the social-democratic party (PvdA). The preliminary results indicate that VVD has 41 seats (up from 31) whereas PvdA has 39 seats (up from 30) out of a total of 150 seats. Especially the latter party has won while endorsing a pro-European […]
Blog Post
Yesterday, the High-level Expert Group on reforming the structure of the EU banking sector chaired by the governor of Finland’s central bank Erkki Liikanen, in short the Liikanen report issued its report. Apart from endorsing other currently discussed points such as common bank supervision and the resolution schemes, one of its main findings is that […]
Blog Post
Over the past few months Germany has become the safe haven of Europe. Depositors fearing a euro break-up have moved their deposits away from the periphery, realizing effective insurance. As a consequence, peripheral banks’ funding has shifted from private to public sources (see e.g. Pisany-Ferry and Merler). The Target2 imbalances that capture this have risen to unprecedented levels.
Blog Post
The similarities between banks and countries in a monetary union are striking. First, like banks, countries in a monetary union can face a self-fulfilling run resulting in sudden stops. Second, just as one banks’ risk taking increases other banks’ probability of default because of contagion, as the current crisis in the eurozone shows, contagion is especially strong within a monetary union due to cross-border trade, impact on domestic banks, or investor beliefs on correlated risk (see e.g. the review in Pericoli and Sbracia, 2003). Third, just like banks considered to be sound turned to be insolvent in the 2007-2008 financial crisis, we are rediscovering that also in advanced economies debt levels can become unsustainable. And while a country with debt denominated in its own currency can not be forced into default by markets, this is not the case in a monetary union.
Blog Post
The financial crisis has exposed the need to devise stronger and broader international and regional safety nets in order to deal with economic and financial shocks and allow for countries to adjust. The euro area has developed several such mechanisms over the last couple of years through a process of trial and error and gradual […]
Working Paper
This paper provides an overview of the recent financial stability mechanisms and their various shortcomings and tries to brush the outline of a more comprehensive safety net architecture that would coherently address the banking, sovereign and external imbalances crises against both transitory and more permanent shocks.