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Dirk Schoenmaker

23 July 2012
ADVISORY SCIENTIFIC COMMITTEE REPORT - No. 1
Details
Abstract
The report discusses a variety of issues involving difficulties in the banking sector, with a view to ascertaining the appropriate institutional infrastructure in the context of the European Union and the euro area. Forbearance on the part of banks dealing with delinquent borrowers is problematic if it is designed as a way to game creditors and supervisors. Supervisors should not tolerate excessive forbearance; failure to intervene early tends to increase the costs of the crisis. Macro-prudential concerns should not induce the authorities to delay clean-ups of banks in difficulties. To minimise the macroeconomic fallout from banking problems and to reduce the temptation for authorities to delay and hide problems in banking, it is necessary to have a viable resolution regime that leaves room for authorities to reduce the systemic fallout from resolution. The Advisory Scientific Committee calls for the establishment of strong European bodies responsible for banking supervision and bank resolution. A European competence is necessary to ensure that cross-border concerns are given appropriate weight in supervision and resolution.
JEL Code
G28 : Financial Economics→Financial Institutions and Services→Government Policy and Regulation
G33 : Financial Economics→Corporate Finance and Governance→Bankruptcy, Liquidation
17 September 2013
ADVISORY SCIENTIFIC COMMITTEE REPORT - No. 3
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Abstract
The European macro-prudential policy framework operates at two levels. First, the ESRB has a legal responsibility for macro-prudential oversight in the EU. Second, various national and EU authorities have responsibility for the implementation of macro-prudential policy. The creation of a European banking union is an important innovation within this two-level structure. In response to this innovation, this paper makes two key points. First, the ECB should be in charge of macro-prudential policies conferred by the Capital Requirements Regulation and Directive. Within the ECB, macro-prudential decisions should be taken entirely by the Governing Council, while micro-prudential decisions should be prepared by the Supervisory Board. Second, the ESRB remains the only EU-wide body in charge of macro-prudential supervision, responsible for all financial activities. The ESRB's effectiveness could be strengthened by creating a post of Managing Director, who would carry out the policy determined by the General Board and would be responsible to the General Board for the management of the ESRB.
JEL Code
G28 : Financial Economics→Financial Institutions and Services→Government Policy and Regulation
5 November 2014
ADVISORY SCIENTIFIC COMMITTEE REPORT - No. 5
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Abstract
Monetary, macro-prudential and micro-prudential policies are intimately linked. The macroprudential authority should be allocated to the body where the overall balance of synergies (between policy objectives) over conflicts and the required expertise are the largest. This report reviews the pros and cons of the four institutional models for the allocation of macro-prudential powers: (1) the government, (2) the central bank, (3) the financial authority and (4) a committee with representatives from these three bodies.
JEL Code
G28 : Financial Economics→Financial Institutions and Services→Government Policy and Regulation
11 February 2016
ADVISORY SCIENTIFIC COMMITTEE REPORT - No. 6
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Abstract
Keeping global warming below 2°C will require substantial reductions in global greenhouse gas emissions over the next few decades. To reduce emissions, economies must reduce their carbon intensity; given current technology, this implies a decisive shift away from fossil-fuel energy and related physical capital. In an adverse scenario, the transition to a low-carbon economy occurs late and abruptly. Belated awareness about the importance of controlling emissions could result in an abrupt implementation of quantity constraints on the use of carbon-intensive energy sources. The costs of the transition will be correspondingly higher. This adverse scenario could affect systemic risk via three main channels. First, a sudden transition away from fossil-fuel energy could harm GDP, as alternative sources of energy would be restricted in supply and more expensive at the margin. Second, there could be a sudden repricing of carbon-intensive assets, which are financed in large part by debt. Third, there could be a concomitant rise in the incidence of natural catastrophes related to climate change, raising general insurers' and reinsurers' liabilities. To quantify the importance of these channels, policymakers could aim for enhanced disclosure of the carbon intensity of non-financial firms. The related exposures of financial firms could then be stress-tested under the adverse scenario of a late and sudden transition. In the short-term, joint research efforts of energy experts and macroeconomists could help to better quantify macroeconomic risks and inform the design of scenarios for stress testing. In the medium-term, the availability of granular data and dedicated low-frequency stress tests will provide information about the impact of the adverse scenario on the financial system.
JEL Code
G28 : Financial Economics→Financial Institutions and Services→Government Policy and Regulation
23 February 2016
WORKING PAPER SERIES - No. 2
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Abstract
Financial supervision focuses on the aggregate (macroprudential) in addition to the individual (microprudential). But an agreed framework for measuring and addressing financial imbalances is lacking. We propose a holistic approach for the financial system as a whole, beyond banking. Building on our model of financial amplification, the financial cycle is the key variable for measuring financial imbalances. The cycle can be curbed by leverage restrictions that might vary across countries. We make concrete policy proposals for the design of macroprudential instruments to simplify the current framework and make it more consistent.
JEL Code
E44 : Macroeconomics and Monetary Economics→Money and Interest Rates→Financial Markets and the Macroeconomy
G01 : Financial Economics→General→Financial Crises
G28 : Financial Economics→Financial Institutions and Services→Government Policy and Regulation
13 February 2017
WORKING PAPER SERIES - No. 34
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Abstract
The stability of a banking system ultimately depends on the strength and credibility of the fiscal backstop. While large countries can still afford to resolve large global banks on their own, small and medium-sized countries face a policy choice. This paper investigates the impact of resolution on banking structure. The financial trilemma model indicates that smaller countries can either conduct joint supervision and resolution of their global banks (based on single point of entry resolution) or reduce the size of their global banks and move to separate resolution of these banks’ national subsidiaries (based on multiple point of entry resolution). Euro-area countries are heading for joint resolution based on burden sharing, while the UK and Switzerland have implemented policies to downsize their banks.
JEL Code
F30 : International Economics→International Finance→General
G21 : Financial Economics→Financial Institutions and Services→Banks, Depository Institutions, Micro Finance Institutions, Mortgages
G28 : Financial Economics→Financial Institutions and Services→Government Policy and Regulation
1 November 2017
WORKING PAPER SERIES - No. 56
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Abstract
In the aftermath of the Great Financial Crisis, regulators have rushed to strengthen banking supervision and implement bank resolution regimes. While such resolution regimes are welcome to reintroduce market discipline and reduce the reliance on taxpayer-funded bailouts, the effects on the wider banking system have not been properly considered. This paper proposes a macro approach to resolution, which should consider (i) the contagion effects of bail-in, and (ii) the continuing need for a fiscal backstop to the financial system. For bail-in to work, it is important that bail-inable bank bonds are largely held outside the banking sector, which is currently not the case. Stricter capital requirements could push them out of the banking system. The organisation of the fiscal backstop is crucial for the stability of the global banking system. Single-point-of-entry resolution of international banks is only possible for the very largest countries or for countries working together, including in terms of sharing the burden of a potential bank bailout. The euro area has adopted the latter approach in its Banking Union. Other countries have taken a stand-alone approach, which leads to multiple-point-of-entry resolution of international banks and contributes to fragmentation of the global banking system. For bail-in to work, it is important that bail-inable bank bonds are largely held outside the banking sector, which is currently not the case. Stricter capital requirements could push them out of the banking system. The organisation of the fiscal backstop is crucial for the stability of the global banking system. Single-point-of-entry resolution of international banks is only possible for the very largest countries or for countries working together, including in terms of sharing the burden of a potential bank bailout. The euro area has adopted the latter approach in its Banking Union. Other countries have taken a stand-alone approach, which leads to multiple-point-of-entry resolution of international banks and contributes to fragmentation of the global banking system
JEL Code
G01 : Financial Economics→General→Financial Crises
G21 : Financial Economics→Financial Institutions and Services→Banks, Depository Institutions, Micro Finance Institutions, Mortgages
G28 : Financial Economics→Financial Institutions and Services→Government Policy and Regulation