Public funding of failing banks in the European Union (LBF vol. 19) 2020/8.8:8.8 Reflection and final thoughts

Public funding of failing banks in the European Union (LBF vol. 19) 2020/8.8

8.8 Reflection and final thoughts

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This dissertation started with the observation that the GFC revealed in adequacies in the institutional and regulatory framework for the banking sector to safeguard the stability of domestic financial markets and the single financial market as a whole; to break the link between Member States and banks; and to limit the risks of moral hazard. Although the pre vious sections described how the resolution framework impacted the State aid regime for the banking sector, what challenges exist as a result of the co-existence of the resolution framework and the State aid regime, and what potential steps can be taken to address these challenges, it left the key question unaddressed: Did the resolution framework contribute to solving the inadequacies that the GFC revealed? The answer to that question is still difficult to give, considering that the resolution framework is still relatively young and unused. However, certain observations can already be made.

Most cases of failing banks since the introduction of the resolution framework have been solved outside resolution. In the author’s view, however, this is not a sign that the resolution framework is not efficient. Sometimes, the preventive and dissuasive effect can already achieve the desired behaviour. The author proposes that the possibility to bail-in senior debt is an example.

8.8.1 Breaking the link between banks and Member States8.8.2 Addressing moral hazard8.8.3 Safeguarding financial stability8.8.4 Synopsis

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