Europe has long been far too tolerant of moral hazard in its banking system. But with the Cyprus plan, the pendulum may now be swinging too far in the opposite direction. Read more
Bruegel blog
-
With Cyprus, Europe risks being too tough on banking moral hazard
29th March 2013
-
Europe’s Cyprus Blunder and Its Consequences
21st March 2013
The late Mike Mussa, a former Chief Economist of the International Monetary Fund, noted about some episodes of the late-1990s Asian financial turmoil that “there are three types of financial crises: crises of liquidity, crises of solvency, and crises of stupidity.” This quip comes to mind when considering the developments of the past few days around Cyprus. Read more
-
Basel III: Europe’s Interest Is to Comply
18th February 2013
On February 14, European Commissioner Michel Barnier and Federal Reserve Governor Daniel Tarullo indicated their agreement to quickly give the Basel III accord binding force over, respectively, European and American banks. This is welcome. But even more important than the exact timing of adoption is that it should stay true to what the accord actually stipulates. At this point, and contrary to many perceptions in Europe, this is likely to be the case of the US but not in the EU. Read more
-
Europe Takes an Important Step Forward on Banking
17th December 2012
The political agreement reached early on December 13 by Europe’s finance ministers makes it highly likely that legislation establishing a Single Supervisory Mechanism (SSM) with the European Central Bank (ECB) at its center will be enacted in March 2013. This is a big European success, high up on what was the range of possible outcomes. Read more
-
Obama Should Think Globally in Appointing a New SEC Chair
29th November 2012
Mary Schapiro, the chair of the US Securities and Exchange Commission (SEC), has announced that she will step down from her position next month after four years in office. President Barack Obama appointed one of the four other SEC Commissioners, Elisse Walter, to replace her until a more permanent successor is chosen next year. The latter appointment is likely to have momentous consequences, not only for US securities markets but also, and perhaps mainly, for the global architecture of financial standard-setting after the recent systemic financial crisis. The SEC was created as an independent federal agency in the 1930s as part of the Roosevelt administration’s response to the 1929 stock market crash and the Great Depression. In recent years it… Read more
-
Global financial reform and cross-border integration: Asian leadership needed?
23rd October 2012
Before 2007-08, most global financial reform initiatives were based on a near consensus about the benefits from the free circulation of capital between jurisdictions, and from free cross-border competition between financial services firms. As a consequence of the financial crisis in the US and Europe, however, this near consensus can no longer be taken for granted. One implication is the increasingly tangible possibility of at least a partial fragmentation of the global financial system. There are many indications that this fragmentation is becoming more likely. Rating agencies were unregulated in most of the world outside the US before the crisis (South Korea being one exception), but the G20 recommended they should be regulated and supervised by all major jurisdictions, with… Read more
-
The first step in Europe’s banking union is difficult but achievable
16th October 2012
The leaders of Eurozone countries made an unprecedented commitment when they issued on June 29 a statement starting with the words “We affirm that it is imperative to break the vicious circle between banks and sovereigns.” This statement officially acknowledged their intention to break the “doom loop” of mutually reinforcing deterioration of credit conditions afflicting weaker member states and banks headquartered in them. Spain is a prime example of the problem. Severing that feedback loop requires a transfer of vast parts of the banking supervision and policy apparatus from the national to the European level, or banking union. It is probably a prerequisite for maintaining the integrity of Europe’s monetary union in any crisis resolution strategy. Equally important, a failure… Read more
-
The Political Redefinition of Europe
3rd September 2012
For the past few years, headlines in Europe have been dominated by the financial and economic developments of the crisis, first in the banking system and then in sovereign debt markets. Throughout this period the urgencies of the moment have tended to divert attention from the bigger picture, which is political. To be fair, none of the political questions raised by the sequence of events in Europe since mid-2007 is entirely new. But the crisis has shed new light on them, and may allow Europeans to consider them with more lucidity. The attempt made here is not intended to be comprehensive or even consistent, but only to stimulate more thinking on issues which may become increasingly prominent in the next few months. Read more
-
Europe’s Banking Union: Possible Next Steps on a Bumpy Path
3rd July 2012
In their summit statement of June 29, the heads of state and government of the euro zone issued a declaration widely interpreted by investors as the founding act of a European banking union, about which European policymakers have been talking increasingly vocally [http://www.piie.com/blogs/realtime/?p=2887] in the past two months or so. Their commitment remains little more than a promise, with multiple caveats. But Europe’s leaders will now renege on this promise at their peril. The general perception is that an irreversible step has been made, with vast consequences that will unfold only gradually. “We affirm that it is imperative to break the vicious circle between banks and sovereigns,” the heads of state and government declared. “The [European] Commission will present proposals… Read more
-
In Memory of Olivier Ferrand
2nd July 2012
Olivier Ferrand, the founder of French think tank Terra Nova, died of an untimely death on June 30 in the South of France, where he had just been elected deputy for the district of Marseilles North-East. He was 42. Terra Nova, founded in 2008, owed its very existence to Olivier’s extraordinary drive. In a very short period of time it has already made multiple impacts – not least nudging France’s center-left Socialist Party into accepting the principle of open primaries to select their Presidential election candidate, as well as advocating for a constructive French posture in the EU and more structural reform at home. On the whole, Terra Nova has been a voice for enlightenment of the domestic policy debate,… Read more