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Preserving Financial Stability: A Dilemma For The European Union

Author

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  • GILLIAN G. H. GARCIA
  • MARIA J. NIETO

Abstract

Financial institutions are now crossing national borders within the EU. In balancing member states’ desires for sovereignty against the effectiveness of the financial safety net, banks are currently all chartered by Member States and the safety net remains largely the responsibility of individual national governments. The paper questions whether minimally harmonized national safety nets and reliance on voluntary cooperation can keep EU banks safe and sound and prevent financial contagion. The paper examines a number of proposed remedies and recommends enhancing market discipline and adopting a system of prompt corrective action and least‐cost resolution to minimize the incidence of bailouts. (JEL F36, G18, G21)

Suggested Citation

  • Gillian G. H. Garcia & Maria J. Nieto, 2007. "Preserving Financial Stability: A Dilemma For The European Union," Contemporary Economic Policy, Western Economic Association International, vol. 25(3), pages 444-458, July.
    • Handle: RePEc:bla:coecpo:v:25:y:2007:i:3:p:444-458
    DOI: 10.1111/j.1465-7287.2007.00040.x
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    References listed on IDEAS

    as
    1. Edward Kane, 2006. "Can the European Community Afford to Neglect the Need for More Accountable Safety-Net Management?," Atlantic Economic Journal, Springer;International Atlantic Economic Society, vol. 34(2), pages 127-144, June.
    2. Gillian Garcia & Henriëtte Prast, 2004. "Depositor and investor protection in the Netherlands: past, present and future," DNB Occasional Studies 202, Netherlands Central Bank, Research Department.
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    Citations

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    Cited by:

    1. David G. Mayes, 2009. "Did Recent Experience of a Financial Crisis Help in Coping with the Current Financial Turmoil? The Case of the Nordic Countries," Journal of Common Market Studies, Wiley Blackwell, vol. 47(5), pages 997-1015, November.
    2. Eijffinger, S.C.W., 2008. "Crisis Management in the European Union," Other publications TiSEM 1f1d3a09-ff19-4567-abb3-6, Tilburg University, School of Economics and Management.
    3. Kenneth Sullivan, 2008. "Presentación proactiva del desempeño," Boletín, CEMLA, vol. 0(3), pages 130-135, Julio-sep.
    4. International Monetary Fund, 2009. "A European Mandate for Financial Sector Supervisors in the EU," IMF Working Papers 2009/005, International Monetary Fund.
    5. Pilar Gómez-Fernández-Aguado & Antonio Partal-Ureña & Antonio Trujillo-Ponce, 2013. "Evaluating the effects of the EU directive proposal for risk-based deposit insurance premiums in Spain," Working Papers 13.01, Universidad Pablo de Olavide, Department of Financial Economics and Accounting (former Department of Business Administration).
    6. Gillian G.H. Garcia & Rosa M. Lastra & María J. Nieto, 2009. "Bankruptcy and reorganization procedures for cross‐border banks in the EU," Journal of Financial Regulation and Compliance, Emerald Group Publishing Limited, vol. 17(3), pages 240-276, July.
    7. International Monetary Fund, 2008. "Cross-Border Coordination of Prudential Supervision and Deposit Guarantees," IMF Working Papers 2008/283, International Monetary Fund.
    8. Banco Central Europeo, 2008. "La titulización en la zona del euro," Boletín, CEMLA, vol. 0(3), pages 136-149, Julio-sep.
    9. Hardy, Daniel C. & Nieto, Maria J., 2011. "Cross-border coordination of prudential supervision and deposit guarantees," Journal of Financial Stability, Elsevier, vol. 7(3), pages 155-164, August.

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    1. Kane, Edward J., 2006. "Inadequacy of nation-based and VaR-based safety nets in the European Union," The North American Journal of Economics and Finance, Elsevier, vol. 17(3), pages 375-387, December.

    More about this item

    JEL classification:

    • F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration
    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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