ESBies: Safety in the tranches

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

No 21, ESRB Working Paper Series from European Systemic Risk Board

Abstract: The euro crisis was fueled by the diabolic loop between sovereign risk and bank risk, coupled with cross-border flight-to-safety capital flows. European Safe Bonds (ESBies), a union-wide safe asset without joint liability, would help to resolve these problems. We make three contributions. First, numerical simulations show that ESBies would be at least as safe as German bunds and approximately double the supply of euro safe assets when protected by a 30%-thick junior tranche. 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 a step-by-step guide on how to create ESBies, starting with limited issuance by public or private-sector entities. JEL Classification: E44, G01, G28

Keywords: European Safe Bonds; safe assets; sovereign risk (search for similar items in EconPapers)
Date: 2016-09
Note: 1905193
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (10)

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https://www.esrb.europa.eu//pub/pdf/wp/esrbwp21.en.pdf (application/pdf)

Related works:
Journal Article: ESBies: safety in the tranches (2017)
Working Paper: 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)
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