Book contents
- The Changing Fortunes of Central Banking
- The Changing Fortunes of Central Banking
- Copyright page
- Contents
- Figures
- Tables
- Contributors
- Acknowledgement
- 1 Introduction and Overview
- Part I Monetary Economics and Policy
- Part II Financial Stability and Regulatory Policy
- 8 The Macroprudential Toolkit
- 9 Three Cooks or Three Wise Men?
- 10 Liquidity, Default and the Interaction of Financial Stability and Monetary Policy
- 11 Systemic Risk Measurement and Quantification of Systemic Risk Amplification
- 12 What Binds? Interactions between Bank Capital and Liquidity Regulations
- 13 Is Burden Sharing Needed for International Financial Stability?
- Part III Foreign Exchanges and International Architecture
- Part IV The Millennium Challenges of Central Banks
- Index
- References
13 - Is Burden Sharing Needed for International Financial Stability?
from Part II - Financial Stability and Regulatory Policy
Published online by Cambridge University Press: 29 March 2018
Book contents
- The Changing Fortunes of Central Banking
- The Changing Fortunes of Central Banking
- Copyright page
- Contents
- Figures
- Tables
- Contributors
- Acknowledgement
- 1 Introduction and Overview
- Part I Monetary Economics and Policy
- Part II Financial Stability and Regulatory Policy
- 8 The Macroprudential Toolkit
- 9 Three Cooks or Three Wise Men?
- 10 Liquidity, Default and the Interaction of Financial Stability and Monetary Policy
- 11 Systemic Risk Measurement and Quantification of Systemic Risk Amplification
- 12 What Binds? Interactions between Bank Capital and Liquidity Regulations
- 13 Is Burden Sharing Needed for International Financial Stability?
- Part III Foreign Exchanges and International Architecture
- Part IV The Millennium Challenges of Central Banks
- Index
- References
Summary
The stability of a banking system ultimately depends on the strength and credibility of the fiscal backstop. In an international banking system, two problems arise with national fiscal backstops. First, the home country only cares about the domestic externalities of its banks in crisis times. Second, the fiscal capacity of the home country can be limited. Small and medium-sized countries have therefore started a process of downsizing their banks. This chapter argues that the countries can only address the first issue through some form of burden sharing, if we want to maintain both international banking and financial stability. Europe is gradually moving to a euro-area backstop, based on burden sharing, for its Banking Union.
- Type
- Chapter
- Information
- The Changing Fortunes of Central Banking , pp. 203 - 226Publisher: Cambridge University PressPrint publication year: 2018
References
Anginer, A., Cerutti, E. and Martinez Peria, M. (2017), ‘Foreign Bank Subsidiaries Default Risk during the Global Crisis: What Factors Help Insulate Affiliates from their Parents?’, Journal of Financial Intermediation, 29(C), pp. 19–31.Google Scholar
Avgouleas, E. and Goodhart, C. (2015), ‘Critical Reflections on Bank Bail-ins’, Journal of Financial Regulation, 1, pp. 3–29.Google Scholar
Bolton, P. and Oehmke, M. (2016), Bank Resolution and the Structure of Global Banks, Working Paper, Princeton, NJ: Princeton University.Google Scholar
Cerutti, E., Ilyina, A., Makarova, Y. and Schmieder, C. (2010), ‘Bankers without Borders? Implications of Ring-Fencing for European Cross-Border Banks’, in Backé, P., Gnan, E. and Hartmann, P. (eds.), Contagion and Spillovers: New Insights from the Crisis, SUERF Study 2010/5, Vienna.Google Scholar
Chan, S. and van Wijnbergen, S. (2015), ‘Cocos, Contagion and Systemic Risk’, CEPR Discussion Paper No. 10960.Google Scholar
Credit Suisse (2013), ‘Credit Suisse Group Announces Plan to Evolve Its Legal Entity Structure’, Press Release, 23 November, Zurich.Google Scholar
Davies, P. (2015), ‘Resolution of Cross-Border Groups’, in Haentjes, M. and Wessels, B. (eds.), Research Handbook on Crisis Management in the Banking Sector. Edward Elgar, Cheltenham, pp. 261–82.Google Scholar
Demirgüç-Kunt, A. and Huizinga, H. (2013), ‘Are Banks Too Big to Fail or Too Big to Save? International Evidence from Equity Prices and CDS spreads’, Journal of Banking & Finance, 37, pp. 875–94.Google Scholar
Dermine, J. and Schoenmaker, D. (2010), ‘In Banking, Is Small Beautiful?’, Financial Markets, Institutions & Instruments, 19, pp. 1–19.Google Scholar
Dewatripont, M. (2014), ‘European Banking: Bailout, Bail-in and State Aid Control’, International Journal of Industrial Organization, 34, pp. 37–43.Google Scholar
Eatwell, J., Gossé, J.B. and Alexander, K. (2014), ‘Financial Markets and International Regulation’, in Eatwell, J., McKinley, T. and Petit, P. (eds.), Challenges for Europe in the World, 2030, Abingdon: Routledge, pp. 105–37.Google Scholar
ESM (2014), ‘FAQ on the ESM Direct Recapitalisation Instrument’, Luxembourg: European Stability Mechanism, December.Google Scholar
Faia, E. and Weder di Mauro, B. (2016), ‘Cross-Border Resolution of Global Banks: Bail in under Single Point of Entry versus Multiple Points of Entry’, CEPR Discussion Paper No. 11171.Google Scholar
Federal Deposit Insurance Corporation and the Bank of England (2012), ‘Resolving Globally Active, Systemically Important, Financial Institutions: A joint paper by the Federal Deposit Insurance Corporation and the Bank of England’, Washington, DC and London.Google Scholar
Fernández de Lis, S. (2015), ‘The Multiple-Point-of-Entry Resolution Strategy for Global Banks’, blog, International Banker, 25 February.Google Scholar
Financial Stability Board (2014), Key Attributes of Effective Resolution Regimes for Financial Institutions, Basel.Google Scholar
Financial Stability Board (2015), Principles on Loss-absorbing and Recapitalisation Capacity of G-SIBs in Resolution: Total Loss-absorbing Capacity (TLAC) Term Sheet, Basel.Google Scholar
Freshfields Bruckhaus Deringer (2003), Study on Financial Conglomerates and Legal Firewalls, London: Freshfields Bruckhaus Deringer.Google Scholar
Goodhart, C. (1998), ‘The Two Concepts of Money: Implications for the Analysis of Optimal Currency Areas’, European Journal of Political Economy, 14, 407–32.Google Scholar
Goodhart, C. (2014), ‘Bank Resolution in Comparative Perspective: What Lessons for Euorpe?’, in Goodhart, C., Gabor, D., Vestergaard, J. and Ertürk, I. (eds.), Central Banking at a Crossroads: Europe and Beyond, London: Anthem Press, pp. 97–107.Google Scholar
Goodhart, C. and Schoenmaker, D. (2009), ‘Fiscal Burden Sharing in Cross-Border Banking Crises’, International Journal of Central Banking, 5, pp. 141–65.Google Scholar
Goodhart, C. and Schoenmaker, D. (2016), ‘The Global Investment Banks Are Now All Becoming American: Does that Matter for Europeans?’, Journal of Financial Regulation, 2, pp. 163–81.Google Scholar
Goyal, R., Koeva-Brooks, P., Pradhan, M. et al. (2013), ‘A Banking Union for the Euro Area’, IMF Staff Discussion Note 13/01, Washington, DC.Google Scholar
Gros, D. and Belke, A. (2015), Banking Union as a Shock Absorber: Lessons for the Eurozone from the US, Centre for European Policy Studies (CEPS), Brussels.Google Scholar
Gros, D. and Schoenmaker, D. (2014), ‘European Deposit Insurance and Resolution in the Banking Union’, Journal of Common Market Studies, 52, pp. 529–46.Google Scholar
Herring, R. (2007), ‘Conflicts between Home and Host Country Prudential Supervisors’, in Evanoff, D., LaBrosse, J.R. and Kaufman, G. (eds.), International Financial Instability: Global Banking and National Regulation, Singapore: World Scientific, 201–20.Google Scholar
Huertas, T. (2009), ‘The Rationale for and Limits of Bank Supervision’, Paper presented at the Financial Markets Group conference ‘Regulatory Response to the Financial Crisis’ at the London School of Economics on 19 January 2009, London.Google Scholar
Hüttl, P. and Schoenmaker, D. (2016), ‘Fiscal Capacity to Support Large Banks’, Policy Contribution 2016/17, Bruegel.Google Scholar
Kose, A., Prasad, E., Rogoff, K. and Wei, S.J. (2009), Financial Globalization: A Reappraisal, IMF Staff Papers, 56, pp. 8–62.Google Scholar
Laeven, L. and Valencia, F. (2013), ‘Systemic Banking Crises Database’, IMF Economic Review, 61, pp. 225–70.Google Scholar
Langfield, S. and Pagano, M. (2016), ‘Bank Bias in Europe: Effects on Systemic Risk and Growth’, Economic Policy, 31, pp. 51–106.CrossRefGoogle Scholar
Liikanen Report (2012), High-level Expert Group on Reforming the Structure of the EU Banking Sector, Final Report, Brussels.Google Scholar
Mayes, D. (2014), ‘Bank Resolution in New Zealand’, in Goodhart, C., Gabor, D., Vestergaard, J. and Ertürk, I. (eds.), Central Banking at a Crossroads: Europe and Beyond, London: Anthem Press, pp. 123–39.Google Scholar
Pauly, L. (2014), ‘Governing Global Risks: The Evolution of Policy Capacity in the Financial Sector’, WZB Discussion Paper, Berlin: Wissenschaftszentrum Berlin.Google Scholar
Riles, A. (2014), ‘Is New Governance the Ideal Architecture for Global Financial Regulation?’, in Goodhart, C., Gabor, D., Vestergaard, J. and Ertürk, I. (eds.), Central Banking at a Crossroads: Europe and Beyond, London: Anthem Press, pp. 245–63.Google Scholar
Rodrik, D. (2011), The Globalization Paradox: Democracy and the Future of the World Economy, New York, NY: Norton.Google Scholar
Schoenmaker, D. (2013), Governance of International Banking: The Financial Trilemma, New York, NY: Oxford University Press.Google Scholar
Schoenmaker, D. (2015), ‘On the Need for a Fiscal Backstop to the Banking System’, in Haentjes, M. and Wessels, B. (eds.), Research Handbook on Crisis Management in the Banking Sector, Cheltenham: Edward Elgar, pp. 42–54.Google Scholar
Schoenmaker, D. and Véron, N. (2016), European Banking Supervision: The First Eighteen Months, Blueprint 25, Brussels: Bruegel.Google Scholar