The large majority of the more than €2.5 trillion of public and monetary support that euro area banks received between 2008 and 2016 was in the form of liquidity support. Liquidity, however, has not been adequately addressed in the legislative overhaul following the global financial crisis. This paper focuses on liquidity at the moment when the need for liquidity is most acute, namely in resolution. Based on an assessment of the liquidity needs as well as the role and size of the central bank facilities and Single Resolution Fund, it draws the conclusion that a back-stop for the resolution fund, prompter corrective action and better information exchange between the authorities involved appear to be required in order to improve the functioning of the resolution mechanism.
This paper was originally prepared at the request of the Committee on Economic and Monetary Affairs of the European Parliament and commissioned by the Directorate-General for Internal Policies of the Union and supervised by the Economic Governance Support Unit (EGOV). The opinions expressed in this document are the sole responsibility of the author and do not necessarily represent the official position of the European Parliament or CEPS.
Willem Pieter de Groen is Research Fellow and Head of Financial Markets and Institutions Unit at CEPS.
The paper was originally published on the website of the European Parliament and is republished here with its kind permission.
(c) European Union, 2018.