Target balances and financial crises

  • Recently, Fuest and Sinn (2018) have demanded a change of rules for the Eurozone’s Target 2 payment system, claiming it would violate the Statutes of the European System of Central Banks and of the European Central Bank. The authors present a stylized model based on a set of macro-economic assumptions, and show that Target 2 may lead to loss sharing among national central banks (NCBs), thus violating the no risk-sharing requirement laid out by the Eurosystem Statutes. In this note, I present an augmented model that incorporates essential features of the micro- and macroprudential regulatory and supervisory regime that today is hard-wired into Europe’s banking system. The model shows that the original no-risk-sharing principle is not necessarily violated during a financial crisis of a member state. Moreover, it shows that under a banking union regime, financial crisis asset value losses at or below the 99.9th percentile are borne by private investors, not by taxpayers, and particularly not by central banks. Therefore, policy conclusions from the micro-founded model differ significantly from those suggested by Fuest and Sinn (2018).

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Metadaten
Author:Jan Pieter KrahnenORCiDGND
URN:urn:nbn:de:hebis:30:3-487990
URL:https://safe-frankfurt.de/policy-center/policy-publications/policy-publ-detailsview/publicationname/target-balances-and-financial-crises.html
Parent Title (English):SAFE policy letter series ; 71
Series (Serial Number):SAFE policy letter series (71)
Publisher:SAFE
Place of publication:Frankfurt am Main
Document Type:Working Paper
Language:English
Year of Completion:2019
Year of first Publication:2019
Publishing Institution:Universitätsbibliothek Johann Christian Senckenberg
Release Date:2019/03/05
Tag:Eurosystem; Target 2; central banks; payment system
Page Number:10
HeBIS-PPN:447156497
Institutes:Wirtschaftswissenschaften / Wirtschaftswissenschaften
Wissenschaftliche Zentren und koordinierte Programme / House of Finance (HoF)
Wissenschaftliche Zentren und koordinierte Programme / Center for Financial Studies (CFS)
Wissenschaftliche Zentren und koordinierte Programme / Sustainable Architecture for Finance in Europe (SAFE)
Dewey Decimal Classification:3 Sozialwissenschaften / 33 Wirtschaft / 330 Wirtschaft
Sammlungen:Universitätspublikationen
Licence (German):License LogoDeutsches Urheberrecht