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Viral Acharya
- 23 July 2012
- ADVISORY SCIENTIFIC COMMITTEE REPORT - No. 1Details
- 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. 3Details
- 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
- 2 June 2014
- ADVISORY SCIENTIFIC COMMITTEE REPORT - No. 4Details
- Abstract
- Banking has grown too much in Europe - in three senses. First, the European banking system has reached a size where its contribution to real economic growth is likely to be nil or negative. Second, the European financial structure is biased towards banks (rather than securities markets), which results in excessively volatile credit creation and lower economic growth. Third, large universal banks - which perform a wide range of banking services, and are peculiarly common in Europe - contribute more to systemic risk than small and narrowly focused banks. To deal with these problems, policymakers should consider new measures such as aggressive anti-trust policy, structural reform of the banking sector, and a capital markets union to address Europe's overbanking problem.
- JEL Code
- G10 : Financial Economics→General Financial Markets→General
G20 : Financial Economics→Financial Institutions and Services→General
- 1 August 2014
- WORKING PAPER SERIES - No. 1702Details
- Abstract
- We study how the consequences of violations of covenants associated with bank lines of credit to firms vary with the financial health of lenders. Following a violation banks restrict usage of lines of credit by raising spreads, shortening maturities, tightening covenants, or cancelling the line or reducing its size. Even though the frequency of covenant violations is fairly stable during the period 2002-2011, the reaction of banks to violations became significantly more restrictive during the recent crisis. Banks in worse financial health are more likely to restrict access to credit lines following a violation, and violations driven by lender health have capital structure and real implications for firms. This behavior is at the heart of a new bank liquidity channel. This channel complements the traditional bank lending channel, which focuses on small financially constrained firms, because credit lines are commonly used by large, high credit quality firms to provide insurance against loss of access to external finance.
- JEL Code
- G21 : Financial Economics→Financial Institutions and Services→Banks, Depository Institutions, Micro Finance Institutions, Mortgages
G31 : Financial Economics→Corporate Finance and Governance→Capital Budgeting, Fixed Investment and Inventory Studies, Capacity
G32 : Financial Economics→Corporate Finance and Governance→Financing Policy, Financial Risk and Risk Management, Capital and Ownership Structure, Value of Firms, Goodwill
E22 : Macroeconomics and Monetary Economics→Consumption, Saving, Production, Investment, Labor Markets, and Informal Economy→Capital, Investment, Capacity
E5 : Macroeconomics and Monetary Economics→Monetary Policy, Central Banking, and the Supply of Money and Credit - Network
- ECB Lamfalussy Fellowship Programme