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Regulatory influence on market conditions in the banking union: The cases of macro-prudential instruments and the bail-in tool

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  • Tröger, Tobias H.

Abstract

This paper looks into the specific influence that the European banking union will have on (future) bank client relationships. It shows that the intended regulatory influence on market conditions in principle serves as a powerful governance tool to achieve financial stability objectives. From this vantage, it analyzes macro-prudential instruments with a particular view to mortgage lending markets - the latter have been critical in the emergence of many modern financial crises. In gauging the impact of the new European supervisory framework, it finds that the ECB will lack influence on key macro-prudential tools to push through more rigid supervisory policies vis-à-vis forbearing national authorities. Furthermore, this paper points out that the current design of the European bail-in tool supplies resolution authorities with undue discretion. This feature which also afflicts the SRM imperils the key policy objective to re-instill market discipline on banks' debt financing operations. The latter is also called into question because the nested regulatory technique that aims at preventing bail-outs unintendedly opens additional maneuvering space for political decision makers.

Suggested Citation

  • Tröger, Tobias H., 2015. "Regulatory influence on market conditions in the banking union: The cases of macro-prudential instruments and the bail-in tool," SAFE Working Paper Series 109, Leibniz Institute for Financial Research SAFE.
  • Handle: RePEc:zbw:safewp:109
    DOI: 10.2139/ssrn.2613802
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    References listed on IDEAS

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    1. Claudio Borio, 2011. "Implementing the Macroprudential Approach to Financial Regulation and Supervision," Chapters, in: Christopher J. Green & Eric J. Pentecost & Tom Weyman-Jones (ed.), The Financial Crisis and the Regulation of Finance, chapter 7, Edward Elgar Publishing.
    2. Carmen M. Reinhart & Kenneth S. Rogoff, 2009. "Varieties of Crises and Their Dates," Introductory Chapters, in: This Time Is Different: Eight Centuries of Financial Folly, Princeton University Press.
    3. Tobias Adrian & Adam B. Ashcraft, 2012. "Shadow Banking Regulation," Annual Review of Financial Economics, Annual Reviews, vol. 4(1), pages 99-140, October.
    4. Frank Smets, 2014. "Financial Stability and Monetary Policy: How Closely Interlinked?," International Journal of Central Banking, International Journal of Central Banking, vol. 10(2), pages 263-300, June.
    5. Claudio Borio, 2003. "Towards a Macroprudential Framework for Financial Supervision and Regulation?," CESifo Economic Studies, CESifo Group, vol. 49(2), pages 181-215.
    6. Anonymous, 2009. "Abstract of the discussion," British Actuarial Journal, Cambridge University Press, vol. 15(1), pages 202-217, March.
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    Cited by:

    1. Götz, Martin R. & Tröger, Tobias, 2016. "Should the marketing of subordinated debt be restricted/different in one way or the other? What to do in the case of mis-selling?," SAFE White Paper Series 35, Leibniz Institute for Financial Research SAFE.

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    More about this item

    Keywords

    banking union; macro-prudential supervision; real estate lending; bail-in; market discipline;
    All these keywords.

    JEL classification:

    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • G01 - Financial Economics - - General - - - Financial Crises
    • 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
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • K22 - Law and Economics - - Regulation and Business Law - - - Business and Securities Law
    • K23 - Law and Economics - - Regulation and Business Law - - - Regulated Industries and Administrative Law

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