Crisis Management and Resolution for a European Banking System

Abstract

This paper proposes an integrated crisis management and resolution framework for the EU's single banking market. It comprises a European Resolution Authority (ERA), armed with the mandate and the tools to deal cost-effectively with failing systemic cross-border banks, and is designed to address many fundamental operational and incentive problems. It also seeks to reduce moral hazard and better protect countries against the risk of twin fiscal-financial crises by detaching banks from government budgets. The ERA would be most effective if it were twinned or combined with a European Deposit Insurance and Resolution Fund.

Keywords: Bank reforms, Bank resolution, Bank supervision, Banking crisis, Banking systems, Economic integration, European Monetary System, Financial crisis, Financial stability, Global Financial Crisis 2008-2009, Risk management