scholarly journals Tug of War over Financial Assistance: Which Way Forward for Eurozone Stability Mechanisms?

2021 ◽  
Vol 9 (2) ◽  
pp. 173-184
Author(s):  
Moritz Rehm
Keyword(s):  
Moral Hazard ◽  
Financial Stability ◽  
Banking Sector ◽  
Limited Liability ◽  
Cost Benefit ◽  
Constant Factor ◽  
Financial Assistance ◽  
Burden Sharing ◽  
Member States ◽  
European Stability Mechanism

This article analyses the development of financial assistance in the Eurozone since 2010. It argues that reforms to instruments and bodies, notably the European Financial Stability Facility, the European Stability Mechanism, and the current Covid-19 recovery fund, are best explained by a re-occurring pattern of negotiations between potential creditors and debtors based on common Eurozone interests and national cost-benefit considerations. Building on a liberal intergovernmentalist approach, this article shows how this pattern influenced the step-by-step reform of financial assistance in the Eurozone. The threat to Eurozone stability served as a constant factor encouraging member states to expand and deepen the assistance formula. Creditors’ cost-benefit considerations were key for retaining disincentives, a limited liability for common debt, and intermediary borrowing and lending within the financing design. However, on the back of common Eurozone interests, debtors were able to push for an increase in assistance, an expansion of assistance into areas of banking sector support, and a softening of moral hazard elements in the more recent Covid-19 pandemic. Due to creditors’ continuous insistence on safeguards and limited burden-sharing, reform outcomes were repeatedly unable to resolve the difficulties at hand.

scholarly journals European Stability Mechanism Sebagai Upaya Uni Eropa Menangani Krisis Finansial Spanyol

2018 ◽  
Vol 5 (1) ◽  
pp. 15
Author(s):  
Nidya Rahmanita ◽  
Renny Miryanti
Keyword(s):  
Financial Crisis ◽  
Financial Stability ◽  
Structural Adjustment ◽  
Global Financial Crisis ◽  
Banking System ◽  
Financial Assistance ◽  
Bank Capital ◽  
The European Union ◽  
Member States ◽  
European Stability Mechanism

Global Financial Crisis has revealed major weakness in the design and implementation of the existing economic governance framework of the European Union. In addition, the first temporary fiscal backstop is EFSF (The European Financial Stability Facility) as a temporary crisis resolution mechanism by the Euro area Member States. In this case, The EFSF does not provide any further financial assistance, so the task of EFSF being replace by the new mechanism that includes the establishment of a permanent crisis management mechanism as the safeguard against imbalances in individual countries that is ESM (European Stability Mechanism). Spain as one of the Eurozone Member States that fall on financial crisis caused by disproportionate growth in the real estate sector, along with the expansion of credit, on 25 June 2012 made an official request for financial assistance through ESM for its banking system. In accordance with MoU, Spain must conduct a structural adjustment program through identifying individual bank capital needs, recapitalising and restructuring.

scholarly journals The Asymmetric Implementation of the European Banking Union (EBU): Consequences for Financial Stability

2016 ◽  
Vol 50 (1) ◽  
pp. 7-26 ◽  
Author(s):  
Uwe Vollmer
Keyword(s):  
Financial Stability ◽  
Voting Rights ◽  
Banking Union ◽  
Member States ◽  
Bank Supervision ◽  
Eu Member States ◽  
European Banking Union ◽  
European Banking ◽  
Close Cooperation ◽  
European Stability Mechanism

Abstract EU Member States outside the Eurozone are hesitating to enter the European Banking Union (EBU) and to establish “close cooperation” in bank supervision with the ECB. This paper analyzes the consequences of such asymmetric integration for financial stability in Europe. It argues that the main obstacles against establishing close cooperation are a lack of voting rights and insufficient access to the fiscal backstop provided by the European Stability Mechanism (ESM). The paper presents arguments as to why international cooperation in bank supervision could be welfare improving, if multinational banks are dominant. It also discusses suitable reform options for making it more attractive for EU Member States to begin a close cooperation with the ECB.

scholarly journals Implications of the Global Financial Crisis on the Banking Sector in Eastern Europe and Baltic States

2011 ◽  
Author(s):  
Eva Banincova
Keyword(s):  
Financial Crisis ◽  
Financial Stability ◽  
Banking Sector ◽  
Global Financial Crisis ◽  
Bank Lending ◽  
Financial Supervision ◽  
Baltic States ◽  
Member States ◽  
Eu Member States ◽  
New Eu Member States

In 2008-09 the banking sectors of four Central and East European States and three Baltic States have experienced a large-scale financial crisis in the EU for the first time since becoming foreign-owned. Amongst the new EU member states Baltic States and Hungary were the worst affected economies. The paper first explores why the extent of crisis varied among these seven states by distinguishing major differences in the pre-crisis bank lending practices which reflect different macroeconomic developments and exchange rate policies in these states. Based on the analysis of bank performance indicators since 2008 and my interviews with representatives of major banks active in the region, the important role of foreign banks in mitigating the risks of financial contagion is outlined. The implication from the crisis is examined mainly from the perspective of the financial supervision and regulation in the enlarged EU. By inspecting the concrete experience of financial supervision authorities in the Baltic States the paper shows why the host country supervisors were not able to curb excessive lending and risk-taking by large Scandinavian banks. Since it is expected that the new EU regulatory and supervisory framework will reinforce the financial stability in the case of large cross-border banking groups, the paper addresses the issues in the financial crisis prevention, management are resolution in the new EU member states which will improve based on the new EU regulatory and supervisory framework for credit institutions.

Policy Conditionality attached to ESM financial assistance

2020 ◽  
Author(s):  
Ulrich Forsthoff ◽  
Nathalie Lauer
Keyword(s):  
Financial Stability ◽  
Sovereign Debt ◽  
Debt Crisis ◽  
Financial Assistance ◽  
Central Component ◽  
Sovereign Debt Crisis ◽  
Angela Merkel ◽  
The Subject ◽  
European Stability Mechanism ◽  
Intense Debate

‘If the euro fails, Europe fails.’ This dictum of the German Chancellor, Ms Angela Merkel, from 2012 marks the importance that the sovereign debt crisis and its solution were accorded in political discourse and action. The European Stability Mechanism (ESM) and its predecessor, the European Financial Stability Facility (EFSF), are a central component of the strategy put in place by the euro states to overcome the crisis. The creation of these institutions and the policies pursued by them have been the subject of intense debate.

scholarly journals Information Disclosure in China’s Rising Securitization Market

2021 ◽  
Vol 9 (4) ◽  
pp. 66
Author(s):  
Xueer Chen ◽  
Chao Wang
Keyword(s):  
Moral Hazard ◽  
Adverse Selection ◽  
Financial Institutions ◽  
Information Disclosure ◽  
Financial Stability ◽  
Banking Sector ◽  
Information Transparency ◽  
Internet Finance ◽  
The Government ◽  
Market Needs

E-commerce and FinTech are currently booming in China. The growing consumer market is accompanied by internet finance, by which consumers can easily borrow money from financial institutions online. As a result, the growing risks of financial institutions are of concern to the government and regulatory bodies. Consequently, the securitization market in China is seeing rapid growth that could affect financial stability. Applying FinTech and emerging technologies in securitization might be an effective way to protect against these risks. This paper studies the question of whether China needs a higher standard of information transparency in order to protect against its risks against the background of digital transformation. We analyzed the determinants of securitization in the Chinese banking sector, relying on data on banks for two periods: pre-2017Q4 and post-2017Q4. The main findings of the paper demonstrate that the application of FinTech in China’s banking industry resulted in less information asymmetry. The risk exposure was the most significant determinant in general. Higher risk exposures increased securitization transaction volumes, which reflects securitization with adverse selection problems between the originator and investors. Liquidity and profitability, as important determinants indicating the moral hazard problem, also affected securitization pre-2017Q4, but liquidity and profitability were found to be unimportant determinants after the application of FinTech (the post-2017Q4 period). Moreover, this study finds that the effects of the adverse selection and moral hazard problems varied in different types of banks. Overall, our findings suggest that the Chinese securitization market needs a higher standard of information transparency.

Financial Assistance to Euro Area Members (EFSF and ESM)

2020 ◽  
Author(s):  
Ulrich Forsthoff ◽  
Jasper Aerts
Keyword(s):  
European Union ◽  
Euro Area ◽  
Financial Stability ◽  
Financial Assistance ◽  
Financial Instruments ◽  
The European Union ◽  
Short Overview ◽  
European Stability Mechanism

This chapter sets out the operational rules, financial instruments, and financial assistance documentation of the European Stability Mechanism (ESM) and the European Financial Stability Facility (EFSF) in the context of granting stability support within the European Union (EU). Following a short overview of the governance of the ESM and the EFSF when granting financial assistance, the scope and functioning of the financial instruments of the ESM are described in more detail as well as the contractual documentation governing the relation between the ESM and the beneficiary ESM Member. This chapter concludes with an overview of the EFSF/ESM country cases.

On the Major Differences between the Banking Systems of the EAEU States

2020 ◽  
Vol 26 (4) ◽  
pp. 397-406
Author(s):  
T. E. Chekanova
Keyword(s):  
Financial Stability ◽  
Systems Approach ◽  
Negative Impact ◽  
Banking Regulation ◽  
Member States ◽  
Banking Systems ◽  
Significant Negative Impact ◽  
The Difference ◽  
The Government ◽  
Major Factors

The presented study examines the problems of integration of the national banking systems of the member states of the Eurasian Economic Union (EAEU).Aim. The study aims to examine the major differences in various aspects of functioning of banking systems in the EAEU member states in terms of their impact on integration processes.Tasks. The author identifies the most prominent features of the banking systems of the EAEU states; reveals the depth of the existing differences through a comparative analysis of various indicators of national banking systems; outlines ways of overcoming integration problems associated with differences in the banking sectors of the Union states.Methods. This study is based on universal general scientific methods and elements of comparative, functional, and economic analysis within the framework of a systems approach. The author uses regulatory documents and banking reports of the EAEU states, statistical and analytical materials of the Eurasian Economic Commission (EEC), and data of Moody’s international rating agency.Results. The study identifies a number of aspects that contain the major differences in the functioning of banking systems in the EAEU member states; highlights the disproportions in the scale, level of development, financial stability, and risks of the banking spheres of the Union states; comparatively analyzes the proportion of banking and non-banking structures in the system and the share of the government and non-resident companies in the capital of banks; marks the difference in the pricing of banking services; determines differences in the existing approaches to banking regulation and the established standards; analyzes the major differences in the legislative acts of the central banks and governments of the EAEU member states and in the terms and definitions used. According to the results of the study, the major factors hindering the development of integration processes between the banking systems of the EAEU states are identified.Conclusions. The existing differences between the banking systems of the EAEU countries are diverse and multifaceted. The author states that the aspects addressed in this study have a significant negative impact on the further development of integration processes, describing the major directions and actions of the member states aimed at minimizing the exiting differences, which are required to facilitate the convergence of the states and the transition towards a common financial market.

Eurobonds: Three Lessons from China’s “Debt Centralization/Decentralization” Experience

2021 ◽  
Vol 0 (0) ◽  
Author(s):  
Zhiyong An
Keyword(s):  
Moral Hazard ◽  
Euro Area ◽  
Sovereign Debt ◽  
Debt Crisis ◽  
Budget Constraint ◽  
Sovereign Debt Crisis ◽  
The European Union ◽  
Member States ◽  
Institutional Mechanism ◽  
Previous Series

Abstract Eurobonds, dubbed as Coronabonds in the context of the current coronavirus crisis, are being hotly debated among the euro area member states amid the COVID-19 pandemic. The debate is in many ways a retread of the euro area sovereign debt crisis of 2011–2012. As China’s “debt centralization/decentralization” experience is comparable with the introduction of Eurobonds in the European Union (EU) in terms of institutional mechanism design, we review our previous series of studies of China’s “debt centralization/decentralization” experience to shed some light on the Eurobonds debate. We obtain three key lessons. First, the introduction of Eurobonds in EU is likely to soften the budget constraint of the governments of the euro area member states. Second, it is also likely to strengthen the moral hazard incentives of the governments of the euro area member states to intentionally overstate their budget problems. Finally, the magnitudes of the moral hazard effects generated by the introduction of Eurobonds in EU are likely larger than their respective counterparts in China.

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