Bank capital and the European recovery from the COVID-19 crisis

Moritz Schularick, Sascha Steffen and Tröger, Tobias
Authors registered in the RePEc Author Service: Tobias H. Tröger ()

No 14927, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: Do current levels of bank capital in Europe suffice to support a swift recovery from the COVID-19 crisis? Recent research shows that a well-capitalized banking sector is a major factor driving the speed and breadth of recoveries from economic downturns. In particular, loan supply is negatively affected by low levels of capital. We estimate a capital shortfall in European banks of up to 600 billion euro in a severe scenario, and around 143 billion euro in a moderate scenario. We propose a precautionary recapitalization on the European level that puts the European Stability Mechanism (ESM) center stage. This proposal would cut through the sovereign-bank nexus, safeguard financial stability, and position the Eurozone for a quick recovery from the pandemic.

Keywords: Bank capital; Financial stablity; Covid-19 (search for similar items in EconPapers)
JEL-codes: E50 G01 G20 (search for similar items in EconPapers)
Date: 2020-06
New Economics Papers: this item is included in nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Related works:
Working Paper: Bank capital and the European recovery from the COVID-19 crisis (2020)
Working Paper: Bank capital and the European recovery from the COVID-19 crisis (2020)
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