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Connect them where it hurts. The missing piece of the puzzle

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  • Lorenzo Esposito

    (Banca d'Italia)

Abstract

The crisis has shown that banks that are too big to fail are at the core of the international financial system. These institutions are thus at the centre of a powerful wave of re-regulation of the banking system. Overall, the proposals developed to strengthen the capacity of big banks to weather future crises, starting with Basel 3, point in the right direction, but they are missing an essential element. SIFIs have a peculiar nature. Their most salient feature is that because of their size, interconnectedness and similar strategies, a crisis of one tends to become a crisis of all. Hence, it is essential to have a mechanism in place to link them together beforehand. The paper analyzes measures that can serve this end. It then proposes a tool designed to give SIFIs a shared interest in behaving correctly, i.e. taking into account the externality implied by their very existence.

Suggested Citation

  • Lorenzo Esposito, 2013. "Connect them where it hurts. The missing piece of the puzzle," Questioni di Economia e Finanza (Occasional Papers) 151, Bank of Italy, Economic Research and International Relations Area.
    • Handle: RePEc:bdi:opques:qef_151_13
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    File URL: https://www.bancaditalia.it/pubblicazioni/qef/2013-0151/QEF_151.pdf
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    References listed on IDEAS

    as
    1. Scherer, F. M., 2010. "A Perplexed Economist Confronts 'Too Big to Fail'," Working Paper Series rwp10-007, Harvard University, John F. Kennedy School of Government.
    2. F. M. Scherer, 2010. "A Perplexed Economist Confronts 'too Big to Fail'," European Journal of Comparative Economics, Cattaneo University (LIUC), vol. 7(2), pages 267-284, December.
    3. Hyun Song Shin, 2010. "Financial intermediation and the post-crisis financial system," BIS Working Papers 304, Bank for International Settlements.
    4. Frédéric Lobez, 2010. "Too big to fail : gouvernance et régulation des banques," Revue d'Économie Financière, Programme National Persée, vol. 100(4), pages 187-199.
    5. Scherer, Frederic Michael, 2010. "A Perplexed Economist Confronts 'Too Big to Fail'," Scholarly Articles 4454151, Harvard Kennedy School of Government.
    6. Larry Eisenberg & Thomas H. Noe, 2001. "Systemic Risk in Financial Systems," Management Science, INFORMS, vol. 47(2), pages 236-249, February.
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    Citations

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    Cited by:

    1. Giuseppe Mastromatteo & Giuseppe Mastromatteo, 2016. "Minsky at Basel: A Global Cap to Build an Effective Postcrisis Banking Supervision Framework," Economics Working Paper Archive wp_875, Levy Economics Institute.
    2. Lorenzo Esposito & Giuseppe Mastromatteo, 2020. "Profitti, rischi e capital ratios: come sviluppare una vigilanza prudenziale neutrale al risk-appetite delle banche (Profits, risk, and capital ratios: how to design a prudential supervision neutral w," Moneta e Credito, Economia civile, vol. 73(290), pages 141-154.
    3. Lorenzo Esposito & Ettore Giuseppe Gatti & Giuseppe Mastromatteo, 2019. "Sustainable finance, the good, the bad and the ugly: a critical assessment of the EU institutional framework for the green transition," DISCE - Quaderni del Dipartimento di Politica Economica dipe0004, Università Cattolica del Sacro Cuore, Dipartimenti e Istituti di Scienze Economiche (DISCE).
    4. Lorenzo Esposito, 2014. "Con Annibale alle porte. L'internazionalizzazione del sistema bancario e il caso italiano," Moneta e Credito, Economia civile, vol. 67(266), pages 311-338.

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    More about this item

    Keywords

    financial crisis; too big to fail; macro-prudential; stability fund;
    All these keywords.

    JEL classification:

    • E60 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - General
    • G01 - Financial Economics - - General - - - Financial Crises
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation

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