Bail-In Blog

by Martin Götz, Jan Pieter Krahnen, Tobias Tröger

The Looming Risks for Banking Policy in the Rescue of Monte Paschi di Siena[more]

by Martin Götz

A Bail-in allows troubled banks to quickly raise important capital in times of a crisis without burdening tax payers. In the case of a bail-in the resolution authority can make creditors pay up and impose that her debt will be converted into equity. This conversion risk should on the one hand increase the market discipline and on the other hand mitigate further damages through a fast...[more]

by Stephan Lorz

The opposite of good, Kurt Tucholsky once said, is well-meant. And possibly the bail-in rules are an excellent example hereof. The lessons drawn from the financial crisis are certainly understandable and the aspirations - legible from the implemented financial reforms - are absolutely honorable: If banks are in trouble and fail, it shouldn’t be the taxpayers who pay for their rescue, as in...[more]

by Stephan Lorz

Whoever points an accusing finger at others, should be aware that three of his hand’s fingers are pointing back at him. This is particularly relevant for bail-in in Europe. The German policy makers and the general public have always required a rigorous implementation of the agreed resolution tools for distressed banks in Italy. These resolution tools include first and foremost the bail-in of...[more]

by Martin Götz and Tobias Tröger

A key lesson for policymakers after the financial crisis was to reduce the likelihood of bank bail-outs using taxpayers’ funds. Bailing out banks not only stresses public finances – it also undermines market discipline and thus incentivizes banks to take on more risk. All in all, a vicious circle. Policymakers thus looked for ways to ensure that failing banks can be recapitalized without tapping...[more]

by Bernd Neubacher

Is state aid flowing into Italy's bank sector? Do politics, supervision and regulation still stand where they were eight years ago? No, the bail-in regulation is not dead. Nevertheless, whoever decides to look at the wrangling about government aid for Italy’s banks, can witness how policy makers finish off the principle of creditors’ participation. The front of bail-in advocates seems to shrink...[more]

by Stephan Lorz

The German government scored a stage victory in the dispute over the right sequence of risk communitization in Europe. From German perspective the establishment of European deposit insurance system should only occur after a series of necessary measures aimed to equalize risk structure across banks and to remove old burdens from banks’ balance sheets. One such measure is to ensure that banks...[more]

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