Burden Sharing in a Banking Crisis in Europe (original) (raw)
Related papers
Can European Bank Bailouts work?
2012
Cross-border banking needs cross-border recapitalisation mechanisms. Each mechanism, however, suffers from the financial trilemma, which is that cross-border banking, national financial autonomy and financial stability are incompatible. In this paper, we study the efficiency of different burdensharing agreements for the recapitalisation of the 30 largest banks in Europe. We consider bank bailouts for these banks in a simulation framework with stochastic country-specific bailout benefits. Among the burden sharing rules, we find that the majority and qualified-majority voting rules come close to the efficiency of a bailout mechanism with a supranational authority. Even a unanimous voting rule works better than home-country bailouts, which are very inefficient.
Coordinating Bank Failure Costs and Financial Stability
SSRN Electronic Journal, 2000
Banking groups have become increasingly multinational but the institutional infrastructure to deal with solvency or liquidity problems is still largely national. This might lead to financial instability if national authorities do not internalise externalities abroad. Recently ex-ante burden sharing agreements have been established (e.g. EFSF), but little empirical work has been done on potential costs and benefits of such agreements. We estimate the costs and benefits of financial stability support for large, internationally active banks under several proposed agreements. We show costs according to the 'national solution', where only home authorities inject capital, as our benchmark. 'Specific' sharing agreements would be redistributive at the expense of smaller and East European countries (not home to large cross-border banking groups). The 'general fund' mechanism will smooth costs across countries but may lead to unequal redistribution of costs. We also show that coordinating bank failure costs may bring about financial stability benefits.
An international examination of the economic effectiveness of banking recapitalization
International Business Review, 2016
While the literature on capital adequacy and bank recapitalization agrees on the importance of a minimum capital requirement, recurring financial crises across the world do little to suggest that capital adequacy is enough protection for banks, even when they fully comply. By examining the case of regulation compelled banking recapitalizations in a crosscountry context (during the period 1990Q1 to 2016Q2), we scrutinize the effectiveness of banking recapitalization on the economies of recently recapitalized countries. We provide implications for international business research, practice and policy by highlighting the need for countries adopting the Basel capital adequacy framework to pay attention to the peculiarities of their economies, the supporting regulatory mechanisms and their comparative spare capacities.
2019
of the Ph.D. dissertation The global crisis produced negative externalities both for the financial services industry and for the real economy by contributing to enhancing the debate on the systemic risk. In fact, in response to the banking crises, regulatory agencies encouraged more efforts to monitor, analyse and understand systemically important financial institutions to better identify the determinants of the bank's contribution to the overall systemic risk. Furthermore, public authorities launched banks' rescue programs to contain the systemic risk, ensure the solvency of financial institutions, and restore the confidence in financial markets. For instance, the US governments launched TARP in the October 2008. A few months later, the British government announced a public intervention of 740 billion euros to insure bank's assets. Finally, de Larosière Group (2009) and Basel Committee on Banking Supervision (2010) revealed deficiencies in the bank's corporate governance by identifying a strong link with risk-taking and systemic risk. (Ellis et al., 2014). The aim of this dissertation is to investigate the potential sources of systemic risk by analysing respectively: i) financial interdependencies among banks: quantifying network effects and the stress at which banks are exposed (Battiston et al., 2012) during banking crises by bridging the banking literature with the social network literature; ii) public bailouts: understanding whether safety-nets may create (or mitigate) systemic effects (Acharya and Yorulmazer, 2007) intended as fuelling (or smoothing) bank moral hazards of rescued banks and the possible introduction of competitive distortions in the banking system; iii) corporate governance: investigating the link between bank's board diversity and bank's risk. Paper 1 analyses both the cohesion evolution of the European banking sector during the pre-crisis and post-crisis period and whether network effects, measured in terms of bank's centrality, may help to predict substantial changes in the level of bank's contribution to systemic risk. Paper 2 explores the systemic effects of public bailouts by analysing both the effects on rescued banks' activities and the competitive effects of such public policies on rescued banks' competitors. Furthermore, the paper also investigate on the evaluation effects of these policies in short-term period by using the event-study approach. Paper 3 investigates whether corporate governance mechanisms may impinge on the bank's risktaking, with a particular focus on the board diversity References
Recovery and Resolution Regimes in the Banking Union
Modern Economy, 2021
This paper explores the implications of European Union (EU) legal regulations on approaches to tackling crisis situations in the financial sector. It explains the role and mechanisms of EU institutions in the process of monitoring and recovery of strategically important financial entities inside banking union at the EU level as well as of central bank members of the countries of the banking union. The purpose of the paper is to examine the compliance of EU regulations with national legislation in order to achieve preventive conditions of possible future crises and to protect national economies and the economy of the entire EU in context of the spillover effect and risks arising from the need of banks recovery due to realized losses of the same. The results evince the implementation of EU directives in the national legislation comprehensively, but practice demonstrated that the implementation of the same ones resulted in additional problems that require further EU institutions action...
The impact of the legal and operational structures of euro-area banks on their resolvability
Policy Contributions, 2016
This material was originally published in a paper provided at the request of the Committee on Economic and Monetary Affairs of the European Parliament and commissioned by the Directorate-General for Internal Policies of the Union and supervised by its Economic Governance Support Unit (EGOV). The opinions expressed in this document are the sole responsibility of the authors and do not necessarily represent the official position of the European Parliament. The original paper is available on the European Parliament’s webpage. © European Union, 2016. In the aftermath of the financial crisis, the question of how to handle a big bank’s collapse has arisen. Large banks perform functions that if disrupted could seriously damage the financial sector and the real economy. The European Union’s new resolution regime introduced by the Bank Recovery and Resolution Directive (BRRD) aims at orderly resolution of banks, with creditors – and to greatest the extent possible, not the taxpayer – bearing...