In response to the Crisis, the ECB provided liquidity to banks on a massive scale and intervened in sovereign debt markets. This column argues that bank bailout policies and non-standard monetary policies by the ECB had a significant impact on default risks of sovereigns and banks in the Eurozone. The results, however, show that neither of the two policies was an unqualified success. Policies which are intended to reduce default risk can therefore have opposite effects if they are not properly designed.
Marcel Fratzscher, Malte Rieth, 06 September 2015
Anne Sibert, 02 April 2013
Depositors in Eurozone banks are facing a steep learning curve on just exactly what deposit insurance means. This column points out that the precedents set in Cyprus and Iceland show that deposit insurance is only a legal commitment for small bank failures. In systemic crises, these are more political than legal commitments, so the solvency of the insuring government matters. A Eurozone-wide deposit-insurance scheme would change this.
This reposted column corrects an error, due to the editor, that was in the first posting.
Angelo Baglioni, Umberto Cherubini, 01 December 2010
Bailing out banks has put severe pressure on government finances, particularly in the Eurozone. This column compares 10 EU governments’ explicit bailout commitments with their expected liabilities. It shows that the Irish government’s commitments are an outlier. Faced with a systemic crisis, financial assistance from international institutions is unavoidable.
Max Bruche, Gerard Llobet, 09 August 2010
Bank bailouts have been controversial from the outset, with some commentators saying that they reward banks for making risky loans. This column investigates the idea of an asset buyback in which a special purpose vehicle buys bad loans from banks' balance sheets. It argues that these buybacks could be structured to avoid windfall gains.
Reint Gropp, Christian Gründl, Andre Güttler, 20 April 2010
Public guarantees in the wake of the global crisis have been wide-spread. This column presents recent research on the effects of a 2001 law to remove government guarantees for German banks. It finds that such guarantees were associated with significant moral hazards and removing them reduced the risk taking of banks, their average loan size and their overall lending volumes.
Avinash Persaud, 10 February 2010
Policymakers and commentators have recently argued for downsizing banks that are “too big to fail.” This column argues that the logic is based on an illusion. A 2006 list of institutions considered “too big to fail” would not have included Northern Rock, Bear Sterns, or even Lehman Brothers. Instead, regulators should aim to make the financial system less sensitive to error in the markets’ estimate of risk.
Dirk Schoenmaker, 19 December 2009
Current practice of national crisis resolution is threatening the EU’s single banking market. The financial trilemma suggests that policymakers can only choose two out of the following three objectives: financial stability, financial integration, and national financial policies. This column argues that EU burden-sharing rules among governments can save the single market.