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CEPS Project

The financing of bank resolution

Who should provide the required liquidity?

Unit Involved

Financial Markets and Institutions

01 October 2018 / 30 November 2018

This paper addressed two distinct yet interconnected problems. The first is whether the provision of Emergency Liquidity Assistance (ELA) on an individual bank basis should be centralised within the European Central Bank (ECB) and the second is whether existing liquidity financing arrangements are fit for the role. The paper argues that ELA centralisation would not require Treaty amendment and that a liquidity backstop is needed. However, the latter cannot be provided by the ECB due to the prohibition of monetary financing and other Treaty and EU law requirements. The choice of the EU entity which should be entrusted with the specific mandate will largely depend on the characteristics the facility would take. The paper considers such characteristics and analyses which authority may best fit that role. The paper also suggests that a well-structured facility could have a positive broader macroprudential impact, and that a fine balance needs to be struck between the risk of moral hazard and the beneficial effect this facility may have on market confidence.

 

This project was awarded under the Framework Service Contract for the provision of external expertise in the field of banking resolution (IP/A/ECON-BU/FWC/2015-057/LOT2) with the European Parliament. The full list of CEPS’ Framework Contracts is available here.

CEPS Project

Project Details

Financial Markets and Institutions


The financing of bank resolution

Who should provide the required liquidity?

More About...


This project was funded by the European Parliament (DG for Internal Policies of the Union).
Contact
Willem Pieter De Groen Willem Pieter De Groen
Willem Pieter De Groen
+32 (0)2 229 39 57

Publications

Here are the publications published for this project