resolution: national or european? dirk schoenmaker, dean 2 october 2012, eesc hearing, brussels
TRANSCRIPT
Resolution: National or European?
Dirk Schoenmaker, dean
2 October 2012, EESC Hearing, Brussels
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Resolution proposals
• Bail-in: yes, but be specific which debt instruments (markets want predictability)
• Approach: national or European; not halfway (mutual assistance between national funds)
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The Challange
Problem:
• Failure of large banks poses national and cross-border externalities
• Cross-border externalities are ignored by national authorities
Why?
• Accountability to national politics (i.e. domestic taxpayers)• National legislation/procedures for insolvency
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Nationalism“My country is my castle”
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Theory
How to address asymmetries in national interests?
Financial trilemma – 3 policy objectives:
1. Maintain global financial stability
2. Foster cross-border banking
3. Preserve national authority
Only 2 out of 3 objectives can be obtained!
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Financial trilemma
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Banking Union
• He who pays the piper, calls the tune
• So, resolution determines incentives supervision
• Resolution (and deposit insurance) and banking supervision at same geographic level
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Integrated approach
• Same geographic level • Keep it simple: one deposit insurance and
resolution fund (banks pay once a proper risk based premium)
• One authority: European Deposit Insurance and Resolution Authority (EDIRA)
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EC ECB ECB EDIRA ESM
Fiscal
Backstop Rule
Making Supervision
Lender
of Last
Resort
Deposit
Insurance &
Resolution
Figure: European Institutions for financial supervision and stability in Banking Union
Summing up
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• Schoenmaker, D. and Gros, D. (2012), “A European Deposit Insurance and Resolution Fund – an update”, Duisenberg school of finance Policy Paper no 26
Source
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