Featured Product

    ESRB Examines Bank Resolution and Public Backstop in Banking Union

    August 16, 2018

    ESRB published a working paper examining bank resolution and public backstop in an asymmetric banking union. The authors analyze the optimal bank resolution decisions and the design of a fiscal backstop in a banking union. The findings highlight the importance of establishing country-specific resolution policies for heterogenous countries to benefit from a banking union.

    EC recently issued a communication that identifies a last resort common fiscal backstop for the single resolution mechanism as a critical missing element to complete the banking union. The June 2018 Euro Summit agreed that by the end of the year the Eurogroup would have prepared the terms of reference for the use of the European Stability Mechanism as a common fiscal backstop. This raises several questions: How should a common fiscal backstop be articulated? How should bank resolution decisions be conducted? How much risk-sharing can countries achieve through a banking union? The authors address these questions in a model that takes into account two asymmetries that are prevalent in the Euro Area context.

    The paper characterizes the optimal banking union with endogenous participation in a two-country economy, in which domestic bank failures may be contemporaneous to sovereign crises, giving rise to risk-sharing motives to mutualize the funding of bail-outs. It was found that raising public funds to conduct a bail-out entails the dead-weight loss of distortionary taxation. Bank bail-ins create disruption costs in the economy. When country asymmetry is large, resolution policies exhibit reduced contributions to the public backstop and forbearance in early bank intervention in the fiscally stronger country, facilitating bail-outs in this country. 

     

    Related Link: Working Paper (PDF)

    Keywords: Europe, Banking, Systemic Risk, Banking Union, Bank Resolution, Public Backstop, Bail-in, ESRB

    Featured Experts
    Related Articles
    News

    APRA Announces Deferral of Capital Reform Implementation

    APRA announced that it is deferring the scheduled implementation of Basel III reforms in Australia by one year.

    March 30, 2020 WebPage Regulatory News
    News

    IFRS Publishes Statement on Its Work During the COVID-19 Crisis

    IFRS, in its statement, emphasized that it shares global concerns about the impact of COVID–19 and is supporting its stakeholders by reconsidering timelines of its meetings and publications, providing information on the application of IFRS 9 on financial instruments, and offering calendar updates on ongoing activities.

    March 27, 2020 WebPage Regulatory News
    News

    US Agencies Announce Changes to SA-CCR and CECL Rules Due to COVID-19

    In light of the recent disruptions in economic conditions due to the COVID-19 outbreak, US Agencies (FDIC, FED, and OCC) announced two actions to allow banking organizations to continue lending to households and businesses.

    March 27, 2020 WebPage Regulatory News
    News

    IAIS Adjusts Work Program to Address Impact of COVID-19 on Insurers

    Considering the impact of COVID-19 outbreak, IAIS announced initial adjustments to its work program to provide operational relief to its member supervisors, insurers, and other stakeholders.

    March 27, 2020 WebPage Regulatory News
    News

    OSFI Announces Regulatory Adjustments to Support COVID-19 Efforts

    OSFI published three targeted industry letters that announce a series of regulatory adjustments to support the financial and operational resilience of federally regulated banks, insurers, and private pension plans in the light of COVID-19.

    March 27, 2020 WebPage Regulatory News
    News

    EC Regulation on CCR Mitigation for Covered Bonds and Securitizations

    EC published the Delegated Regulation 2020/447 with regard to regulatory technical standards on the specification of criteria for establishing the arrangements to adequately mitigate counterparty credit risk, or CCR, associated with covered bonds and securitizations.

    March 27, 2020 WebPage Regulatory News
    News

    BCBS Defers Implementation of Final Basel III Standards by One Year

    BCBS has announced deferral of the implementation date of the final Basel III standards by one year, to January 01, 2023.

    March 27, 2020 WebPage Regulatory News
    News

    UK Regulators Announce Measures to Address Impact of COVID-19

    UK Regulatory Authorities published statements and guidance addressed to financial entities on dealing with the impact of the coronavirus (COVID-19) outbreak.

    March 26, 2020 WebPage Regulatory News
    News

    ISDA and Industry Request Delay in Timeline for Initial Margin Rules

    Considering the challenges posed by the COVID-19 pandemic, ISDA submitted a letter on behalf of 21 industry associations and their members requesting BCBS, IOSCO, and global regulators to suspend the current timeline for the initial margin phase-in.

    March 26, 2020 WebPage Regulatory News
    News

    FCA, FRC, and PRA Issue Joint Statement to Address Impact of COVID-19

    In response to the COVID-19 outbreak, FCA, the Financial Reporting Council (FRC), and PRA have announced a series of actions and made statements to support the continued functioning of capital markets in the UK.

    March 26, 2020 WebPage Regulatory News
    RESULTS 1 - 10 OF 4902