European Political Strategy Centre published three new ‘Strategic Notes’, the start of a series called “5 Presidents Report Series”

Today , the internal think tank of the President of the European Commission, the European Political Strategy Centre (EPSC) published three new ‘Strategic Notes’, the start of a series called“5 Presidents Report Series”. Each of these notes deals with individual but interrelated reforms of the EU financial system proposed in the so-called ‘Five Presidents Report on Completing Europe’s Economic and Monetary Union’.

The first of the pieces, entitled “Regaining Citizens’ Trust, Safeguarding Banks’ Stability: Towards a European Deposit Insurance Scheme”, deals with a missing link in the EU’s Banking Union, namely, the lack of a euro-area wide bank insurance scheme, which will further shelter national budgets from risks in their banking sectors. It describes how to do so using a ‘re-insurance’ mechanism, which is a ‘top up’ fund for the existing national insurances mechanism. This increases the resilience of the system, while at the same time limiting moral hazard for EU tax payers.
To access the document, click here

The second note, called “Strengthening the EU’s Financial System: Bridge Financing Options for the Single Resolution Fund”, explains the need for ‘bridge financing’, i.e., additional funding for the Single Resolution Fund before its full capitalization is achieved. This note further looks at the options available to provide this, emphasizing the systemic stability trade-offs between an option based on Member States credit lines and a joint (‘mutualised’) credit line.
To access the document, click here

Finally, the last of the notes, entitled “Severing the ‘Doom Loop’: Further Risk Reduction in the Banking Union”, describes how heavily banks, notably those in the euro area, are exposed to debt issued by their own governments. It proposes to reduce this major source of potential vulnerability through a so-called ‘large exposure regime’, which would require banks to limit their balance sheet exposure to any single country. To access the document, click here

Courtesy of the European Political Strategy Centre, part of the European Commission