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EU Bank Packages: Objectives and Potential Conflicts of Objectives

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Author Info

  • Michaela Posch

    ()
    (Oesterreichische Nationalbank)

  • Stefan W. Schmitz

    ()
    (Oesterreichische Nationalbank)

  • Beat Weber

    ()
    (Oesterreichische Nationalbank)

Abstract

Any attempt to resolve a systemic financial crisis inherently involves conflicts of objectives. In the following article, we identify and elaborate on the conflicts of objectives embodied in the EU bank packages. Building on this, we then analyze how the EU Member States and the EU institutions are dealing with these conflicts of objectives. The empirical basis of our analysis comprises the explicit objectives of the EU bank packages and the details of the bank packages of the individual Member States. Our main findings are: (1) Although much effort has been extended to ensure a harmonized EU approach, the Member States in fact enjoy great leeway in designing national bank packages, which leads to competitive distortion. (2) In the conflict between fiscal objectives and micro- and macroeconomic objectives, the latter have been afforded priority. The bank packages entail passing on the costs of overcoming the crisis to the taxpayers, while the banks’ creditors are not required to make a contribution. (3) As a result, short-term financial stability is favored over long-term stability in the conflict between these two objectives. (4) Some attempts have been made to resolve these conflicts of objectives by attaching conditions to state aid. Our analysis indicates first of all, that under certain circumstances conditions such as dividend restrictions, state influence on company management and salary caps may be consistent with all of the objectives specified, and second, that requirements to maintain lending and solve borrowers’ debt problems are themselves subject to unavoidable conflicts of objectives.

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File URL: http://www.oenb.at/dms/oenb/Publikationen/Finanzmarkt/Financial-Stability-Report/2009/Financial-Stability-Report-17/chapters/fsr_17_special_topics02_tcm16-140532.pdf
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Bibliographic Info

Article provided by Oesterreichische Nationalbank (Austrian Central Bank) in its journal Financial Stability Report.

Volume (Year): (2009)
Issue (Month): 17 ()
Pages: 63-84

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Handle: RePEc:onb:oenbfs:y:2009:i:17:b:2

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Related research

Keywords: Financial crisis; bank packages;

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Cited by:
  1. Fungácová, Zuzana & Jakubík, Petr, 2012. "Bank stress tests as an information device for emerging markets: The case of Russia," BOFIT Discussion Papers 3/2012, Bank of Finland, Institute for Economies in Transition.
  2. Ulrich Suntum & Cordelius Ilgmann, 2013. "Bad banks: a proposal based on German financial history," European Journal of Law and Economics, Springer, vol. 35(3), pages 367-384, June.
  3. Kovacs Ildiko & Karsai Zoltan-Krisztian & Suveg Orsolya & Joita Nicoleta, 2011. "The Relationship Between Macroeconomic Variables And Romanian Corporate Default Rates Between 2002-2008," Annals of Faculty of Economics, University of Oradea, Faculty of Economics, vol. 1(1), pages 206-213, July.
  4. Dimitrios P. Louzis & Aggelos T. Vouldis & Vasilios L. Metaxas, 2010. "Macroeconomic and bank-specific determinants of non-performing loans in Greece: a comparative study of mortgage, business and consumer loan portfolios," Working Papers 118, Bank of Greece.

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