The 2023 Banking Turmoil: Lessons for EU Resolution Authorities

Niccolo Cirillo (), Francesco Pennesi () and Sebastiano Laviola ()
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Niccolo Cirillo: YPFS, Yale School of Management, https://elischolar.library.yale.edu/journal-of-financial-crises/
Francesco Pennesi: YPFS, Yale School of Management, https://elischolar.library.yale.edu/journal-of-financial-crises/
Sebastiano Laviola: YPFS, Yale School of Management, https://elischolar.library.yale.edu/journal-of-financial-crises/

Journal of Financial Crises, 2024, vol. 6, issue 4, 1-54

Abstract: The March 2023 banking turmoil in the United States and Switzerland marked the most significant banking stress in financial markets since the 2007-2009 Global Financial Crisis, prompting a reevaluation of prudential and resolution frameworks. This paper explores whether the 2023 events offer preliminary lessons for resolution authorities within the European Union (EU). Policymakers often struggle to restore confidence in financial systems and contain the repercussions of financial instability. While the 2023 crises in the US and Switzerland underscored this difficulty, authorities largely managed to mitigate the most severe consequences. Nonetheless, some issues in bank crisis management were identified. This paper focuses on the EU crisis management framework, proposing potential regulatory changes to enhance its effectiveness in handling banking crises. Key areas of focus include (1) the interplay between deposit insurance and resolution, (2) the need for optionality and flexibility in resolution tools, and (3) the design of an effective public sector liquidity backstop. These elements are critical for improving the EU's capacity to manage future banking crises effectively.

Keywords: bank regulation; bank resolution; financial stability; financial crisis; emergency liquidity assistance (search for similar items in EconPapers)
JEL-codes: G01 G28 (search for similar items in EconPapers)
Date: 2024
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