Quotation Breuss, Fritz. 2014. The stabilising properties of a European Banking Union in case of financial shocks in the Euro Area. NOeG-2014 Annual Meeting, 30-31 May 2014, Wien, Österreich, 30.05.2014. Invited Talk


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Abstract

This paper uses a two region DSGE model for the Euro area (periphery vs. core) with a banking sector, to analyse the stabilising properties of a European Banking Union (EBU) in case of financial shocks in the Euro Area under different bank resolution scenarios. Besides national interventions ("bail-out") as in the past the EBU offers essentially three new options, namely "Bail-in", EA wide resolution via the Single Resolution Mechanism (SRM) and European Stability Mechanism (ESM) as a backstop solution. A non-interventionist solution in the case of a severe bank loss shock is very costly for the periphery and has sizeable spillover effects to the core. Traditional government rescue measures ("bail-out") have a stabilising effect but are subject to vicious circle feedback loops. Among the three EBU options, namely "Bail-in", EA wide resolution insurance (SRM), and ESM loans to banks, the first and the third option are preferable in terms of minimising the aggregate EA loss. The EA wide resolution insurance (SRM) is best from the perspective of the periphery (since it constitutes a transfer from the core banks to the periphery banks) but is worse for the core. ESM loans to the periphery banks are also costly for the periphery. Within the logic of this model there is one solution which would minimise aggregate, core and periphery losses: this would be a backstop arrangement where the ESM is providing transfers to periphery banks.

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Publication's profile

Status of publication Published
Affiliation WU
Type of publication Paper presented at an academic conference or symposium
Language English
Title The stabilising properties of a European Banking Union in case of financial shocks in the Euro Area
Event NOeG-2014 Annual Meeting, 30-31 May 2014
Year 2014
Date 30.05.2014
Country Austria
Location Wien
URL http://www2.wu.ac.at/noeg2014/
Invited Talk Y

Associations

People
Breuss, Fritz (Details)
Organization
Institute for International Economics IN (Details)
Europainstitut (Badinger) (Former organization)
Research areas (ÖSTAT Classification 'Statistik Austria')
5115 European integration (Details)
5300 Economics (Details)
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