Jacopo Carmassi
- 23 March 2020
- ECONOMIC BULLETIN - ARTICLEEconomic Bulletin Issue 2, 2020Details
- Abstract
- This article provides a comprehensive overview of progress with the deepening of Europe’s Economic and Monetary Union (EMU). The start of a new legislative period for the European Union (2019-24) is a natural and opportune moment to take stock of progress towards completion of the architecture of EMU. The agenda that was proposed in the 2015 Five Presidents’ Report has yet to be fully implemented, with outstanding measures in the financial, fiscal, economic and political domains. This article surveys those various domains, looking at the elements that have been completed, those that are still ongoing, and those that are desirable but not yet under way. It then identifies priorities in terms of completing the banking union, deepening the integration of Europe’s capital markets, improving the euro area’s fiscal architecture and increasing the resilience of national economic structures.
- JEL Code
- E61 : Macroeconomics and Monetary Economics→Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook→Policy Objectives, Policy Designs and Consistency, Policy Coordination
E63 : Macroeconomics and Monetary Economics→Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook→Comparative or Joint Analysis of Fiscal and Monetary Policy, Stabilization, Treasury Policy
F55 : International Economics→International Relations, National Security, and International Political Economy→International Institutional Arrangements
G28 : Financial Economics→Financial Institutions and Services→Government Policy and Regulation
- 27 March 2019
- MACROPRUDENTIAL BULLETIN - ARTICLE - No. 7Details
- Abstract
- This study analyses whether the ability of the euro area banking system to withstand potential shocks while minimising taxpayers’ costs has changed in the ten years since the financial crisis as a consequence of the impact of post-crisis reforms on bank capital and loss-absorbing capacity. The results show that the average probability of default of banks decreased from 3.5% in 2007 to 1.1% in 2017, less than a third of its pre-crisis value. In addition, under conservative assumptions on the scope of liabilities affected by the bail-in tool, banks’ loss-absorbing capacity has increased from 7.2% to 12.0% of total assets owing to the introduction of larger capital buffers and the new resolution framework, which enhances banks’ loss-absorbing capacity via the bail-in tool. Finally, the potential intervention of the Single Resolution Fund has further increased the loss-absorbing capacity of the system to 16.9% of total assets. Considering all these three factors, the ability of the banking system to absorb losses while minimising costs to taxpayers has increased more than 3-fold over the last ten years. When considering a broader scope for the bail-in tool, the system’s loss-absorbing capacity has increased to 55.5% of total assets, which corresponds to an overall 12-fold increase in its ability to absorb losses while minimising taxpayers’ costs.
- JEL Code
- G01 : Financial Economics→General→Financial Crises
G21 : Financial Economics→Financial Institutions and Services→Banks, Depository Institutions, Micro Finance Institutions, Mortgages
G28 : Financial Economics→Financial Institutions and Services→Government Policy and Regulation
- 11 April 2018
- OCCASIONAL PAPER SERIES - No. 208Details
- Abstract
- On 24 November 2015, the European Commission published a proposal to establish a European Deposit Insurance Scheme (EDIS). The proposal provides for the creation of a Deposit Insurance Fund (DIF) with a target size of 0.8% of covered deposits in the euro area and the progressive mutualisation of its resources until a fully-fledged scheme is introduced by 2024. This paper investigates the potential impact and appropriateness of several features of EDIS in the steady state. The main findings are the following: first, a fully-funded DIF would be sufficient to cover payouts even in a severe banking crisis. Second, risk-based contributions can and should internalise specificities of banks and banking systems. This would tackle moral hazard and facilitate moving forward with risk sharing measures towards the completion of the Banking Union in parallel with risk reduction measures; this approach would also be preferable to lowering the target level of the DIF to take into account banking system specificities. Third, smaller and larger banks would not excessively contribute to EDIS relative to the amount of covered deposits in their balance sheet. Fourth, there would be no unwarranted systematic cross-subsidisation within EDIS in the sense of some banking systems systematically contributing less than they would benefit from the DIF. This result holds also when country-specific shocks are simulated. Fifth, under a mixed deposit insurance scheme composed of national deposit insurance funds bearing the first burden and a European deposit insurance fund intervening only afterwards, cross-subsidisation would increase relative to a fully-fledged EDIS. The key drivers behind these results are: i) a significant risk-reduction in the banking system and increase in banks' loss-absorbing capacity in the aftermath of the global financial crisis; ii) a super priority for covered deposits, further contributing to protect EDIS; iii) an appropriate design of risk-based contributions, benchmarked at the euro area level, following a "polluter-pays" approach.
- JEL Code
- G21 : Financial Economics→Financial Institutions and Services→Banks, Depository Institutions, Micro Finance Institutions, Mortgages
G28 : Financial Economics→Financial Institutions and Services→Government Policy and Regulation