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In RealTime posts, PIIE senior staff and colleagues discuss the fast-moving economic news, financial developments, and public policy choices confronting the United States and the world.
By all accounts, EU member countries have for months been debating how to implement the minimum bank capital standards agreed under Basel III. Their arguments have unfolded as the EU works to complete its fourth Capital Requirements Directive (CRD4) and its Capital Requirements Regulation (CRR); (see Véron 2012). Three issues have been contentious: (i) whether [...]
European policymakers, particularly on the continent, have long appeared to be in denial over the systemic banking fragility that is central to the region’s problems. They have first denied the existence of a homegrown banking problem by shifting all the blame to Anglo-Saxons in 2007–09; then by engaging in timid, less-than-credible stress tests while redirecting [...]
It nearly goes without saying that Europe does not have the institutional capacity to solve all of its competitiveness, debt, banking, and political crises simultaneously. Policymakers have yet to invent the institutions to address these huge problems. But Europe does have the capacity to avoid disaster. Fortunately, its incremental steps so far have almost all [...]
As usual, the European Union Council meeting on December 16 and 17 was accompanied by demands for “bold solutions” and paradigm shifts in the form of fiscal union and eurobonds. And as usual, their conclusions [pdf] were disappointing. Largely at Germany’s behest, EU leaders instead merely agreed to do what they had said they would [...]
The time-honored principle of public sector intervention to support banks is that of Walter Bagehot, who wrote in 1873 that the central bank should provide lender of last resort (LLR) lending to solvent banks in a panic, but should not lend to insolvent banks. However, because of the too-big-to-fail effect in which failures of large [...]
We have a deal. You, the US taxpayer, have generously provided to Bank of America the following: one Treasury-FDIC guarantee “against the possibility of unusually large losses” on a pool of assets taken over from Merrill Lynch to the tune of $118 billion, and a further Fed backstop if the Treasury-FDIC piece is not enough. [...]