BEGIN:VCALENDAR VERSION:2.0 PRODID:-//132.216.98.100//NONSGML kigkonsult.se iCalcreator 2.20.4// BEGIN:VEVENT UID:20250813T172627EDT-2429fVfSwv@132.216.98.100 DTSTAMP:20250813T212627Z DESCRIPTION:In collaboration with the European Centre of Excellence\, we we lcome Tobias Tröger\, Fellow of the Center for Financial Studies\, and Cha ir of Private Law\, Trade and Business Law\, Jurisprudence at Goethe-Unive rsity Frankfurt am Main.\n\nAbstract\n\nA key lesson for policymakers afte r the financial crisis was to reduce the likelihood of bank bailouts using taxpayers’ funds. Bailing out banks not only stresses public finances – i t also undermines market discipline\, produces moral hazard and thus incen tivizes banks to take on more risk. All in all\, a vicious circle. Policym akers thus looked for ways to ensure that failing banks can be recapitaliz ed without tapping public coffers. As a result\, the bail-in tool\, codifi ed in the Bank Reorganization and Resolution Directive compels holders of bank equity and debt to bear the brunt of the losses the ailing institutio n incurred. Yet\, having proper resolution tools doesn’t guarantee their t ime-consistent application. Hence\, lawmakers undertook to tie their hands . To strengthen the compelled private sector loss-participation\, the BRRD stipulates in a somewhat entangled manner that in general a bail-in of de btholders needs to provide at least 8% of the resolved bank’s total liabil ities before additional sources\, such as resolution financing mechanisms or treasury funds can be used for bank recapitalizations.\n\nClearly\, a s ystemic crisis that involves the whole financial sector requires widesprea d recapitalizations to ensure stability. Bailing in bank-investors during periods of systemic stress will be a shock and awe-strategy that will wrea k havoc on markets and does anything but restore confidence in the continu ous and proper functioning of the financial system. Legislators have fores een this possibility and thus provided an exception to the rule: in order to avoid widespread panic and to ensure the safety and soundness of the fi nancial system\, resolution authorities can institute a precatory recapita lization outside of the BRRD framework in order to fill gaps in banks capi tal endowment that were revealed in stress-tests.\n\nHowever\, many theore tically sound concepts of banking policy reveal their ugly traits when imp lemented in the midst of a political melee. In fact\, there is one key iss ue here that was brought to the fore by the recent struggle over the fate debtholders in Italy’s Monte dei Paschi di Siena: the notion of financial stability and systemic risk in the banking sector is very blurry and leave s plenty of room for interpretation. This provides a gateway for politicia ns who deem it easier to sell yet another bail-out to their electorate tha n a bail-in of certain parts of their constituency. In the current context \, the rhetoric that stresses the BRRD’s “flexibility” comes to no surpris e from politicians and central bankers with a known inclination for bail-o uts. To be sure\, this is not a problem of the periphery. European banks\, particularly major universal banks in large Member States already lack pr ofitability and are further squeezed by the competition from fin-techs\, b ut they are major employers of highly skilled labor. Downsizing the sector in overbanked Europe thus raises concerns which accounts for many politic ians’ proclivity to tacitly subsidize the sector which can be regarded as the 21st-century coal and steel industry. Indeed\, any perception that bai l-in is only cheap talk and will not be applied in a stringent manner will immediately lower dull market-discipline. Instead\, financing costs for b anks will be more favorable as implicit government guarantees are reinstat ed. As a result\, achieving the key policy goal of the BRRD is imperiled. \n DTSTART:20161012T170000Z DTEND:20161012T183000Z LOCATION:NCDH 202\, Chancellor Day Hall\, CA\, QC\, Montreal\, H3A 1W9\, 36 44 rue Peel SUMMARY:Why Bail-in Fails – A Critical Look at a Key Feature of the Europe an Banking Union URL:/channels/event/why-bail-fails-%E2%80%93-critical- look-key-feature-european-banking-union-263262 END:VEVENT END:VCALENDAR