ESBies: safety in the tranches

Markus Brunnermeier, Sam Langfield, Marco Pagano, Ricardo Reis, Stijn Van Nieuwerburgh and Dimitri Vayanos

LSE Research Online Documents on Economics from London School of Economics and Political Science, LSE Library

Abstract: The euro crisis was fuelled by the diabolic loop between sovereign risk and bank risk, coupled with cross-border flight-to-safety capital flows. European Safe Bonds (ESBies), a euro area-wide safe asset without joint liability, would help to resolve these problems. We make three contributions. First, numerical simulations show that ESBies with a subordination level of 30% would be as safe as German bunds and would increase safe asset supply. Second, a model shows how, when and why the two features of ESBies – diversification and seniority – can weaken the diabolic loop and its diffusion across countries. Third, we propose how to create ESBies, starting with limited issuance by public or private-sector entities.

JEL-codes: E44 G28 (search for similar items in EconPapers)
Date: 2017-04-06
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 (64)

Published in Economic Policy, 6, April, 2017, 32(90), pp. 175 - 219. ISSN: 0266-4658

Downloads: (external link)
http://eprints.lse.ac.uk/74320/ Open access version. (application/pdf)

Related works:
Journal Article: ESBies: safety in the tranches (2017)
Working Paper: ESBies: Safety in the tranches (2016)
Working Paper: ESBies: Safety in the Tranches (2016)
Working Paper: ESBies: safety in the tranches (2016)
Working Paper: ESBies - Safety in the tranches (2016)
Working Paper: ESBies: Safety in the Tranches (2016)
Working Paper: ESBies: Safety in the tranches (2016)
Working Paper: ESBies: Safety in the tranches (2016)
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