Under the E.U.’s banking law enacted after the 2008
financial crisis, the state governments “are not supposed to inject fresh
taxpayer money into a bank if it is deemed insolvent. When a bank gets into
financial trouble, shareholders and bondholders, assumed to be sophisticated
investors aware of the risks, are supposed to take the hit and bear the losses.”[1]
Much of the banking reforms were intended, moreover, “to prevent banks from
becoming so big and so risky that they could hold the global economy hostage.
Politicians and policy makers didn’t want taxpayers to be on the hook for the
banks’ mistakes.”[2]
What about a mid-sized bank whose financial plight puts a state’s economy and
reigning political elite in jeopardy? Should the E.U.’s central bankers look
the other way and allow the state’s government to finance a bail-out so
stockholders and bondholders need not feel the brunt?
The full essay is at "Essays on the E.U. Political Economy," available at Amazon.
1. Jack
Ewing, Gaia Pianigiani, and Chad Bray, “Bailout
for Italy’s Oldest Bank Tests Too-Big-to-Fail Rules,” The New York Times, June 1, 2017.
2. Ibid.
