How can European banks learn from the US?

Jon Danielsson, Hermann Oskarsson, 11 September 2012The current EZ crisis is not Europe’s first sovereign- debt crisis. This column shows parallels can be drawn from an all-but-forgotten episode, i.e. the 1990 Faroese crisis. Just like Greece, the Faroes got into difficulty because of excess borrowing facilitated by a currency union with an AAA-rated partner undeterred as the sovereign debt spiralled upwards.

Charles Wyplosz, 16 October 2012Countries have various mechanisms that provide lending when a bank fails. But when bank problems far exceed available resources, central banks must be lenders of last resort, even when their role is clouded to mitigate moral hazard. This column explains the ECB is ill-equipped to act as such a lender; it doesn’t have enough control due to coordination problems across countries. The column argues this must change.

Daniel Gros, 7 July 2012The EZ crisis – born as a debt crisis (Greece) – has grown up into a banking crisis (Ireland, Cyprus, Spain, …). This column argues that Spain is symptomatic of larger banking problems, so the EU Summit decisions on banking union are welcome and critical to any long term solution. Yet someone must pay for Spanish bank losses. Spanish politics is shielding Spanish creditors, European politics is shielding EZ taxpayers, so the Spanish government will pay – and in doing so may go the way of Ireland.

Thorsten Beck, Daniel Gros, Dirk Schoenmaker, 24 June 2012After more than two years of efforts and innumerable emergency summits, the Eurozone crisis shows now signs of responding to treatment. This column argues that solving the Eurozone crisis requires policies that separate the banking and sovereign facets of the crisis. The losses incurred by Europe’s banks must be swiftly recognised by establishing a European Resolution Authority to identify weak banks and fix or liquidate them. Such an institution needs a fiscal backstop and the ESM should provide one.

Chiara Angeloni, Guntram Wolff, 19 April 2012Europe’s sovereign debt crisis has reignited the debate over the link between sovereign and banking risk. This column presents data from the July stress test and December Capital Exercise of European Banking Authority. It finds that holdings of sovereign debt is not the main driver of bank stock market performance but that investors do take into account the riskiness of sovereign debt in the bank’s host country.

Dirk Schoenmaker, 9 December 2012Eurozone banking union discussions are full of questions about the scope of Eurozone microprudential bank supervision. Yet, this column argues that there is surprisingly little debate on the macroprudential supervision that is necessary to safeguard the wider European financial system. After all it is macro developments, such as fast rising housing prices, that lie at the heart of the ongoing crisis in Europe.

Nicolas Véron, 23 May 2012Many policymakers and academics are now agreed that a banking union, together with some form of fiscal union, is needed if the Eurozone is to emerge from the crisis in one piece. This column argues that while the current proposals for a banking union still need to be fine tuned, the crisis calls for swift and bold action.Full Article: Is Europe ready for banking union?

Nicolas Véron, 26 October 2010For whom is the financial crisis over? This column argues that the US response has been far more effective at reassuring investors than that in Europe. It says that stress tests have failed to trigger the needed recapitalisation and restructuring of Europe’s troubled banks. Europe’s leaders, it argues, must tackle these problems head-on. Full Article: The EU has not yet solved its banking problem