Greece: What About the Banks?

A recent news story gives us a sobering anecdote about the Greek crisis: a merchant who must conduct all his business in cash because he can neither receive credit card payments nor pay vendors with electronic transfers. This means that the Greek banking system is failing to provide a payment system, a core function.   At first blush, this looks like another piece of the same crisis story we’ve heard for some time. But it is important to distinguish the banking system and its woes from the refusal of the “Troika” to extend a bailout program for the Greek government over … Read more

How to Save Bank Resolution in the European Banking Union

The Single Resolution Mechanism (SRM) just enacted by the European Parliament will fail in its essential mission of managing the failure of a systemically important bank in a way that overcomes the fatal link between sovereigns and their banks. The SRM simply provides no strategy to avoid contagion from a bank failure because depositors and short-term creditors are not adequately protected, due to an insufficient resolution fund and the absence of a credible, centralized deposit insurance scheme.  If bank resolution is not a credible threat, then the Single Supervisory Mechanism of the European Banking Union will be a paper tiger.… Read more