Policy portal Stability & Supervision

When trust in the financial system disappears, panic sets in: fire sales of financial assets and bank runs can make the entire system collapse. Taxpayers are forced to bail out “too-big-to-fail” institutions to protect essential economic functions (deposits, credit, payment systems).

Mitigating implicit “moral hazard” requires sound prudential policies protecting essential banking services from excessive risk-taking and maintaining adequate capital levels to cover possible losses. Well-resourced, and independent supervision is also key. Finally, prudential regulation must also respond to new risks related to digitalisation (see “Digital Finance”) and climate change (see climate risk under “Sustainable Finance”).

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1 PUBLICATIONS

Report

“Europe’s banking trilemma” – a report on Banking Union and bank structure reform

This report on Banking Union and bank reform in the EU, “Europe’s banking trilemma” [click to download], concludes that, despite its intention, Banking Union will fail to prevent European citizens from bearing the losses of failed banks in the event of a systemic banking crisis unless there are meaningful structural and capital reforms to Europe’s largest banks.

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