Bank versus non-bank credit in the United States, Europe and China. Bruegel Policy Contribution, 2012/07, 5 June 2013

In the wake of recent crisis developments in the US and Europe, non-bank credit channels have often been portrayed as 'shadow banking' and have been considered primarily through the lens of the risks they may pose to financial stability. However, the debate about financial system structures remains immature, in large part due to lack of reliable and comparable data. The available evidence actually points towards a correlation between the development of non-bank credit and higher resilience against systemic risk, at least in developed economies. Policy should aim at better statistical information, and at strengthening the infrastructure for the gradual development of sustainable nonbank credit provision.

Regulation of European Banks and Business Models: Towards a new paradigm? CEPS Paperbacks. June 2012

Amidst talks of establishing an EU-wide banking union, the recent changes in the regulatory framework and the rethinking of the future of European banking structure, the future of EU bank regulation is inextricably linked to banks’ business models. Using a sample of over 70 banks, which overlaps with those subjected to the EBA’s 2011 stress tests, this report emphasizes the key regulatory gaps that emerge from a comprehensive analysis of the soundness and performance of bank business models and provides policy-makers with guidance to reinforce the evolving regulatory framework in European banking.

Closing financial institutions on both sides of the Atlantic: Are there differences in approach? CEPS Commentary, 25 February 2015

In the aftermath of the Great Financial Crisis both the EU and the US have implemented resolution procedures for their largest and most systemic financial institutions. This Commentary examines the main differences between the two frameworks. The EU framework allows, inter alia, action to prevent the failure of a credit institution, while the US regulatory framework requires that all systemic banks subject to resolution must be closed and resolved. The greater flexibility under the EU resolution framework allows action to be taken to preserve a credit institution without putting it through an insolvency process, which makes limiting moral hazard less obvious. Moreover, the scope of the EU framework is still narrow, since it does not allow the recovery of non-bank financial institutions, whereas the US framework does.

The Vulnerability of Europe's Small and Medium-Sized Banks. Bruegel Working Paper 2015/07, 16 July 2015

We study the vulnerability of 130 banks directly supervised by the European Central Bank’s Single Supervisory Mechanism. Illustrative stress tests using banks’ balance sheet data reveal that significant stress prevails in the euro area’s smaller and medium-sized banks, many of them located in southern Europe. The banks we identify as stressed also have performed substantially worse on the stock market. The vulnerable banks are typically hobbled by non-performing loans to European businesses. Strengthening the banking system, therefore, is important to achieve sustainable recovery because it will revitalise credit to the healthier segments of the economy. But instead of emphasising bank recapitalisation, as in past years, we believe the task is to shrink the banking sector to a healthier core.

Communication as a policy tool: Important lessons from Cyprus. CEPS Commentary, 28 March 2013

After a week in which Cypriot politicians reassured people that their deposits were safe, followed by the announcement of a bank levy on savings, then a rush to withdraw cash amid general confusion and anxiety, Cypriot Senior Researcher Leonor Coutinho argues that in the case of a banking crisis it is vital for policy-makers to treat communication as an important component of the policy toolkit.

Countries under Adjustment Programmes: What role for the ECB? CEPS Special Report No. 124, December 2015

Providing ‘technical assistance/advice’ on programmes for countries under financial stress is well within the mandate of the European Central Bank (ECB). Being fully part of the Troika, however, is a different role. Formally the ECB does not participate in the ‘decision-making’ on programmes (decisions are taken by the Finance Ministers – and the IMF). However, the ECB is part of the ‘decision-shaping’ process. These two roles have often been confused. The ECB should interpret its formal role in future ESM (European Stability Mechanism) programmes as narrowly as possible. Providing advice but avoid taking part in the operational work of programme surveillance. The ECB should de facto leave the Troika. At any rate, future incidents like the Italian or Spanish letters will be superseded by the OMTs (outright monetary transactions) and an Irish-type situation would be shaped by the legal framework of the Bank Recovery and Resolution Directive (BRRD) and the potential funding from the Single Resolution Fund (SRF). An additional issue for the ECB is internal coherence: Its six-member Executive Board manages the participation in the Troika, monetary policy is decided by the Governing Council and banking supervision is under the Supervisory Board, separated in principle by Chinese walls from the (rest of the) ECB.