European banking: Bailout, bail-in and state aid control

Mathias Dewatripont

International Journal of Industrial Organization, 2014, vol. 34, issue C, 37-43

Abstract: More than 5years after the fall of Lehman Brothers, and at a time where the Banking Union will start with a Balance Sheet Assessment, several regulatory initiatives are trying to make bailouts harder, and push forward ‘bail-in’ as an alternative. This article discusses the pros and cons of these initiatives, and stresses in particular, looking at various cases of banking crises, that financial instability can be much more costly than bailouts. It therefore pleads for: (i) not ruling out prefunded bailouts as an alternative/complement to bail-in, especially to deal with negative macroeconomic shocks; (ii) making sure markets will understand that the risk of bail-in is concentrated on long-term bank liabilities.

Keywords: Banking sector; Financial crisis; Bailouts; Bail-ins; State aid (search for similar items in EconPapers)
JEL-codes: G01 G21 G28 H81 (search for similar items in EconPapers)
Date: 2014
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (30)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:indorg:v:34:y:2014:i:c:p:37-43

DOI: 10.1016/j.ijindorg.2014.03.003

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