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Bank resolution financing in the banking union

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  • Hadjiemmanuil, Christos

Abstract

In early 2012, the Spanish state came under strong market pressure due to its engagement in round after round of large-scale bank bailouts. The country’s joint sovereignbank crisis shed new light on the nature of the euro area’s crisis. European decision-makers were forced to openly recognize the non-fiscal – that is, the banking and monetary – causes of sovereign distress and to accept the need for drastic policy solutions. The policy shift soon took concrete form with the launch of the Banking Union project in June 2012. The principal intention was to break the bank-sovereign link and to relieve the euro area’s weaker economies from the almost impossible burden of having to finance bank bailouts out of national fiscal resources. The mutualization of bailout costs through a common ‘fiscal backstop’ was, in other words, the key objective of the Banking Union as originally conceived. Subsequent policy choices, however, have marked a relaxation, if not partial abandonment, of this objective. The policy approach eventually adopted with regard to resolution financing in the context of the Banking Union’s Single Resolution Mechanism (SRM) is based on the burden-sharing norms of the Bank Recovery and Resolution Directive (BRRD), the instrument harmonizing bank resolution regimes across the EU. This guarantees the legal consistency of resolution frameworks within and outside the euro area. It is less certain, whether the chosen approach can insulate national state finances from the costs of bank bailouts and/or ensure the full equalization of the financial conditions for bank resolution everywhere in the euro area. The sufficiency of the planned common financial instruments is a particular concern.

Suggested Citation

  • Hadjiemmanuil, Christos, 2015. "Bank resolution financing in the banking union," LSE Research Online Documents on Economics 61588, London School of Economics and Political Science, LSE Library.
  • Handle: RePEc:ehl:lserod:61588
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    File URL: http://eprints.lse.ac.uk/61588/
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    Cited by:

    1. Giuliana, Raffaele, 2022. "Fluctuating bail-in expectations and effects on market discipline, risk-taking and cost of capital," ESRB Working Paper Series 133, European Systemic Risk Board.
    2. Moritz Rehm, 2021. "Tug of War over Financial Assistance: Which Way Forward for Eurozone Stability Mechanisms?," Politics and Governance, Cogitatio Press, vol. 9(2), pages 173-184.
    3. Elisabetta Montanaro, 2016. "The process towards centralisation of the European financial supervisory architecture: The case of the Banking Union," PSL Quarterly Review, Economia civile, vol. 69(277), pages 135-172.
    4. Velliscig, Giulio & Floreani, Josanco & Polato, Maurizio, 2022. "How do bail-in amendments in Directive (EU) 2017/2399 affect the subordinated bond yields of EU G-SIBs?," Journal of Empirical Finance, Elsevier, vol. 68(C), pages 173-189.
    5. Kirova Silvia, 2017. "The First Steps Toward the Banking Union’s Implementation and Effects on the Eurozone Banking Sector," Economic Themes, Sciendo, vol. 55(1), pages 25-38, March.
    6. Ioannis G. Asimakopoulos, 2018. "International law as a negotiation tool in Banking Union; the case of the Single Resolution Fund," Journal of Economic Policy Reform, Taylor & Francis Journals, vol. 21(2), pages 118-131, April.
    7. Haufler, Andreas, 2021. "Regulatory and bailout decisions in a banking union," Journal of Banking & Finance, Elsevier, vol. 133(C).

    More about this item

    JEL classification:

    • F3 - International Economics - - International Finance
    • G3 - Financial Economics - - Corporate Finance and Governance

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