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Fiscal Capacity to Support Large Banks

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Fiscal Capacity to Support Large Banks

Bruegel,

5 Minuten Lesezeit
5 Take-aways
Audio & Text

Was ist drin?

Shoring up too-big-to-fail banks in the euro zone could call for extreme measures.

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Editorial Rating

8

Qualities

  • Analytical
  • Innovative
  • Well Structured

Recommendation

The global financial crisis and the euro-zone debt imbroglio called into question the sufficiency of some EU member states’ fiscal resources to reinforce their banking systems. Researchers Pia Hüttl and Dirk Schoenmaker posit that authorities should revise the European Stability Mechanism so that it can respond quickly to recapitalize systemically important banks in a worst-case scenario. getAbstract recommends their informative, succinct study to regulators, bankers and financial professionals for its focused argument and proposal.

Summary

The early 21st-century global financial tumult made it difficult for some countries to muster the necessary financial resources to support their banking systems. In the euro zone, the capacity of members to subsidize their largest banks differs, according to each country’s economic strength. In 2014, the European Union enacted a new stabilization tool: The “bail-in regime” allows private funds to invest in failing banks, relieving some of the burden on taxpayers for bank rescues. But the measure remains untested, and the scheme does not appear to suit potential collapses of systemically important banks. Policy...

About the Authors

Pia Hüttl is an affiliate fellow at Bruegel, where Dirk Schoenmaker is a senior fellow.

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