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ESBies: safety in the tranches

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

Economic Policy, 2017, vol. 32, issue 90, 175-219

Abstract: Summary 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 G01 G28 (search for similar items in EconPapers)
Date: 2017
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Related works:
Working Paper: ESBies: safety in the tranches (2017) Downloads
Working Paper: ESBies: Safety in the tranches (2016) Downloads
Working Paper: ESBies: Safety in the Tranches (2016) Downloads
Working Paper: ESBies: safety in the tranches (2016) Downloads
Working Paper: ESBies - Safety in the tranches (2016) Downloads
Working Paper: ESBies: Safety in the Tranches (2016) Downloads
Working Paper: ESBies: Safety in the tranches (2016) Downloads
Working Paper: ESBies: Safety in the tranches (2016) Downloads
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