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European banking: Bailout, bail-in and state aid control

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  • Dewatripont, Mathias

Abstract

More than 5years after the fall of Lehman Brothers, and at a time where the Banking Union will start with a Balance Sheet Assessment, several regulatory initiatives are trying to make bailouts harder, and push forward ‘bail-in’ as an alternative. This article discusses the pros and cons of these initiatives, and stresses in particular, looking at various cases of banking crises, that financial instability can be much more costly than bailouts. It therefore pleads for: (i) not ruling out prefunded bailouts as an alternative/complement to bail-in, especially to deal with negative macroeconomic shocks; (ii) making sure markets will understand that the risk of bail-in is concentrated on long-term bank liabilities.

Suggested Citation

  • Dewatripont, Mathias, 2014. "European banking: Bailout, bail-in and state aid control," International Journal of Industrial Organization, Elsevier, vol. 34(C), pages 37-43.
    • Handle: RePEc:eee:indorg:v:34:y:2014:i:c:p:37-43
    DOI: 10.1016/j.ijindorg.2014.03.003
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    More about this item

    Keywords

    Banking sector; Financial crisis; Bailouts; Bail-ins; State aid;
    All these keywords.

    JEL classification:

    • G01 - Financial Economics - - General - - - Financial Crises
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • H81 - Public Economics - - Miscellaneous Issues - - - Governmental Loans; Loan Guarantees; Credits; Grants; Bailouts

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