Question A:
Breaking the “doom loop” — a negative spiral that can result when banks hold sovereign bonds and governments bail out banks — would increase the stability of European economies in the event of another financial crisis.
Responses
Responses weighted by each expert's confidence
Question B:
Regulators should try to break the doom loop by assigning positive risk weights — in calculating banks’ capital requirements — to banks’ holdings of domestic and other Eurozone sovereign bonds.
Responses
Responses weighted by each expert's confidence
Question C:
Breaking the doom loop would impose substantial costs on powerful political constituencies.
Responses
Responses weighted by each expert's confidence
Question A Participant Responses
| Participant | University | Vote | Confidence | Bio/Vote History |
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 Franklin Allen |
Imperial College London | Bio/Vote History | ||
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The doom loop is a real problem still, particularly for some southern European countries.
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 Pol Antras |
Harvard | Bio/Vote History | ||
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 Timothy J. Besley |
LSE | Did Not Answer | Bio/Vote History | |
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 Olivier Blanchard |
Peterson Institute | Bio/Vote History | ||
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i think investors often overestimate the budget risks, leading to a stronger doom loop than would be warranted
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 Nicholas Bloom |
Stanford | Bio/Vote History | ||
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 Richard William Blundell |
University College London | Did Not Answer | Bio/Vote History | |
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 Agnès Bénassy-Quéré |
Paris School of Economics | Bio/Vote History | ||
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Not least because it would ease the ability of the ECB to fully play its role of a lender of last resort.
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 Elena Carletti |
Bocconi | Bio/Vote History | ||
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 Jean-Pierre Danthine |
Paris School of Economics | Bio/Vote History | ||
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 Paul De Grauwe |
LSE | Did Not Answer | Bio/Vote History | |
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 Jan Eeckhout |
UPF Barcelona | Bio/Vote History | ||
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 Ernst Fehr |
Universität Zurich | Bio/Vote History | ||
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 Xavier Freixas |
Barcelona GSE | Bio/Vote History | ||
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 Nicola Fuchs-Schündeln |
Goethe-Universität Frankfurt | Bio/Vote History | ||
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 Jordi Galí |
Barcelona GSE | Bio/Vote History | ||
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 Luis Garicano |
LSE | Did Not Answer | Bio/Vote History | |
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 Francesco Giavazzi |
Bocconi | Bio/Vote History | ||
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 Rachel Griffith |
University of Manchester | Bio/Vote History | ||
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 Veronica Guerrieri |
Chicago Booth | Bio/Vote History | ||
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 Luigi Guiso |
Einaudi Institute for Economics and Finance | Bio/Vote History | ||
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 Patrick Honohan |
Trinity College Dublin | Bio/Vote History | ||
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Though it depends on how the break is achieved. Bail-in of wholesale bank creditors plus prudent fiscal stance is the safest combination.
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 Beata Javorcik |
University of Oxford | Bio/Vote History | ||
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 Henrik Kleven |
Princeton | Did Not Answer | Bio/Vote History | |
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 Jan Pieter Krahnen |
Goethe University Frankfurt | Bio/Vote History | ||
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In the Eurozone, banks' home bias creates bankruptcy risk because states cannot print the money needed to redeem their debt.
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 Per Krusell |
Stockholm University | Bio/Vote History | ||
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 Botond Kőszegi |
Central European University | Bio/Vote History | ||
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 Eliana La Ferrara |
Harvard Kennedy | Did Not Answer | Bio/Vote History | |
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 Christian Leuz |
Chicago Booth | Bio/Vote History | ||
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Substantial evidence for doom loop and its effect on financial stability as well as that banks’ sovereign holdings are source of instability
-see background information here -see background information here -see background information here |
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 Thierry Mayer |
Sciences-Po | Bio/Vote History | ||
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 Costas Meghir |
Yale | Bio/Vote History | ||
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 Peter Neary |
Oxford | Did Not Answer | Bio/Vote History | |
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 Kevin O'Rourke |
Oxford | Bio/Vote History | ||
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 Marco Pagano |
Università di Napoli Federico II | Bio/Vote History | ||
 Lubos Pastor |
Chicago Booth | Bio/Vote History | ||
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The financial system would be more stable if banks, which are inherently subject to runs, could survive potential sovereign default.
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 Torsten Persson |
Stockholm University | Did Not Answer | Bio/Vote History | |
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 Christopher Pissarides |
London School of Economics and Political Science | Did Not Answer | Bio/Vote History | |
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 Richard Portes |
London Business School | Bio/Vote History | ||
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 Canice Prendergast |
Chicago Booth | Bio/Vote History | ||
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 Lucrezia Reichlin |
London Business School | Bio/Vote History | ||
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 Rafael Repullo |
CEMFI | Bio/Vote History | ||
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 Hélène Rey |
London Business School | Bio/Vote History | ||
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Yes in principle. Very important to address how doom loop is broken and legacy debt issue though. See 7+7 report (URL below)
-see background information here |
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 Antoinette Schoar |
MIT | Bio/Vote History | ||
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 Daniel Sturm |
London School of Economics | Bio/Vote History | ||
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 John Van Reenen |
LSE | Bio/Vote History | ||
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 John Vickers |
Oxford | Bio/Vote History | ||
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Breaking the doom loop would help but, irrespective of sovereign bond holdings, European banks need to be much better capitalised.
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 Hans-Joachim Voth |
University of Zurich | Bio/Vote History | ||
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 Beatrice Weder di Mauro |
The Graduate Institute, Geneva | Bio/Vote History | ||
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 Karl Whelan |
University College Dublin | Bio/Vote History | ||
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 Charles Wyplosz |
The Graduate Institute Geneva | Bio/Vote History | ||
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I'm not aware of any argument to the contrary.
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 Fabrizio Zilibotti |
Yale University | Did Not Answer | Bio/Vote History | |
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Question B Participant Responses
| Participant | University | Vote | Confidence | Bio/Vote History |
|---|---|---|---|---|
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Franklin Allen |
Imperial College London | Bio/Vote History | ||
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I think this would be helpful.
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Pol Antras |
Harvard | Bio/Vote History | ||
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Timothy J. Besley |
LSE | Did Not Answer | Bio/Vote History | |
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Olivier Blanchard |
Peterson Institute | Bio/Vote History | ||
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Nicholas Bloom |
Stanford | Bio/Vote History | ||
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Richard William Blundell |
University College London | Did Not Answer | Bio/Vote History | |
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Agnès Bénassy-Quéré |
Paris School of Economics | Bio/Vote History | ||
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Concentration charges would be more adequate to avoid triggering a crisis in the short term.
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Elena Carletti |
Bocconi | Bio/Vote History | ||
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I agree but this cannot be the only measure to break the loop. Fiscal backstops, European deposit insurance and alike are also necessary
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Jean-Pierre Danthine |
Paris School of Economics | Bio/Vote History | ||
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Paul De Grauwe |
LSE | Did Not Answer | Bio/Vote History | |
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Jan Eeckhout |
UPF Barcelona | Bio/Vote History | ||
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Ernst Fehr |
Universität Zurich | Bio/Vote History | ||
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Xavier Freixas |
Barcelona GSE | Bio/Vote History | ||
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Nicola Fuchs-Schündeln |
Goethe-Universität Frankfurt | Bio/Vote History | ||
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Jordi Galí |
Barcelona GSE | Bio/Vote History | ||
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Not doing so may raise serious questions about the independence of regulators. There is no such a thing as risk-free debt.
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Luis Garicano |
LSE | Did Not Answer | Bio/Vote History | |
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Francesco Giavazzi |
Bocconi | Bio/Vote History | ||
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it all depends on the time horizon
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Rachel Griffith |
University of Manchester | Bio/Vote History | ||
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Veronica Guerrieri |
Chicago Booth | Bio/Vote History | ||
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Depending on how is done, the transition may make things worse
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Luigi Guiso |
Einaudi Institute for Economics and Finance | Bio/Vote History | ||
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Patrick Honohan |
Trinity College Dublin | Bio/Vote History | ||
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This could be prove to be a false friend. After all, a stressed sovereign can tax or levy local banks even if they hold none of its debt.
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Beata Javorcik |
University of Oxford | Bio/Vote History | ||
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Henrik Kleven |
Princeton | Did Not Answer | Bio/Vote History | |
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Jan Pieter Krahnen |
Goethe University Frankfurt | Bio/Vote History | ||
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I only weakly agree, because there are second order effects of risk weights, and there are better alternatives, like concentration limits.
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Per Krusell |
Stockholm University | Bio/Vote History | ||
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Botond Kőszegi |
Central European University | Bio/Vote History | ||
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Eliana La Ferrara |
Harvard Kennedy | Did Not Answer | Bio/Vote History | |
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Christian Leuz |
Chicago Booth | Bio/Vote History | ||
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Positive weights would be one way to reduce incentives to hold sovereign bonds, but not clear it is the best way to break doom loop. Limits?
-see background information here -see background information here -see background information here |
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Thierry Mayer |
Sciences-Po | Bio/Vote History | ||
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Costas Meghir |
Yale | Bio/Vote History | ||
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Peter Neary |
Oxford | Did Not Answer | Bio/Vote History | |
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Kevin O'Rourke |
Oxford | Bio/Vote History | ||
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Marco Pagano |
Università di Napoli Federico II | Bio/Vote History | ||
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Positive risk weights is not the only option to achieve this purpose. Alternatives are limits to sovereign exposures or their concentration.
-see background information here |
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Lubos Pastor |
Chicago Booth | Bio/Vote History | ||
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But this should be done gradually, to give countries time to adapt. The bigger goal is to make sovereign debt restructuring less costly.
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Torsten Persson |
Stockholm University | Did Not Answer | Bio/Vote History | |
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Christopher Pissarides |
London School of Economics and Political Science | Did Not Answer | Bio/Vote History | |
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Richard Portes |
London Business School | Bio/Vote History | ||
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Canice Prendergast |
Chicago Booth | Bio/Vote History | ||
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Lucrezia Reichlin |
London Business School | Bio/Vote History | ||
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Rafael Repullo |
CEMFI | Bio/Vote History | ||
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Hélène Rey |
London Business School | Bio/Vote History | ||
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Concentration charges may be a better way. Need to discuss at the same time changes in banking regulation and euro safe asset.
-see background information here |
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Antoinette Schoar |
MIT | Bio/Vote History | ||
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Daniel Sturm |
London School of Economics | Bio/Vote History | ||
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John Van Reenen |
LSE | Bio/Vote History | ||
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John Vickers |
Oxford | Bio/Vote History | ||
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Sovereign bonds should plainly have positive risk weights in some circumstances, for obvious risk reasons, not just doom loop reasons.
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Hans-Joachim Voth |
University of Zurich | Bio/Vote History | ||
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Beatrice Weder di Mauro |
The Graduate Institute, Geneva | Bio/Vote History | ||
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Risk weights not the best instrument for diversification. Concentration rules are an alternative and safe assets a necessary complement.
-see background information here |
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Karl Whelan |
University College Dublin | Bio/Vote History | ||
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Charles Wyplosz |
The Graduate Institute Geneva | Bio/Vote History | ||
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Yet, determining the weights could be tricky. There are alternative solutions.
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Fabrizio Zilibotti |
Yale University | Did Not Answer | Bio/Vote History | |
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Question C Participant Responses
| Participant | University | Vote | Confidence | Bio/Vote History |
|---|---|---|---|---|
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Franklin Allen |
Imperial College London | Bio/Vote History | ||
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It would be interesting to see exactly what the political opposition would be to this measure.
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Pol Antras |
Harvard | Bio/Vote History | ||
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Timothy J. Besley |
LSE | Did Not Answer | Bio/Vote History | |
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Olivier Blanchard |
Peterson Institute | Bio/Vote History | ||
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governments with short horizons will not like it.
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Nicholas Bloom |
Stanford | Bio/Vote History | ||
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Richard William Blundell |
University College London | Did Not Answer | Bio/Vote History | |
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Agnès Bénassy-Quéré |
Paris School of Economics | Bio/Vote History | ||
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Elena Carletti |
Bocconi | Bio/Vote History | ||
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Not sure to fully grasp the meaning of the question
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Jean-Pierre Danthine |
Paris School of Economics | Bio/Vote History | ||
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Paul De Grauwe |
LSE | Did Not Answer | Bio/Vote History | |
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Jan Eeckhout |
UPF Barcelona | Bio/Vote History | ||
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Ernst Fehr |
Universität Zurich | Bio/Vote History | ||
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Xavier Freixas |
Barcelona GSE | Bio/Vote History | ||
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Nicola Fuchs-Schündeln |
Goethe-Universität Frankfurt | Bio/Vote History | ||
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Jordi Galí |
Barcelona GSE | Bio/Vote History | ||
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Luis Garicano |
LSE | Did Not Answer | Bio/Vote History | |
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Francesco Giavazzi |
Bocconi | Bio/Vote History | ||
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this is not in my view then main problem
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Rachel Griffith |
University of Manchester | Bio/Vote History | ||
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Veronica Guerrieri |
Chicago Booth | Bio/Vote History | ||
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I do not think this is the main constraint
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Luigi Guiso |
Einaudi Institute for Economics and Finance | Bio/Vote History | ||
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Patrick Honohan |
Trinity College Dublin | Bio/Vote History | ||
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And could generate even larger benefits to others...
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Beata Javorcik |
University of Oxford | Bio/Vote History | ||
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Henrik Kleven |
Princeton | Did Not Answer | Bio/Vote History | |
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Jan Pieter Krahnen |
Goethe University Frankfurt | Bio/Vote History | ||
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Second order (political) effects of changing risk weights are only poorly understood.
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Per Krusell |
Stockholm University | Bio/Vote History | ||
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Botond Kőszegi |
Central European University | Bio/Vote History | ||
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Eliana La Ferrara |
Harvard Kennedy | Did Not Answer | Bio/Vote History | |
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Christian Leuz |
Chicago Booth | Bio/Vote History | ||
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Likely but only indirect evidence based on governments' resistance to potential solutions
-see background information here -see background information here |
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Thierry Mayer |
Sciences-Po | Bio/Vote History | ||
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Costas Meghir |
Yale | Bio/Vote History | ||
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Peter Neary |
Oxford | Did Not Answer | Bio/Vote History | |
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Kevin O'Rourke |
Oxford | Bio/Vote History | ||
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Marco Pagano |
Università di Napoli Federico II | Bio/Vote History | ||
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They would clash with the interests of banks and most political parties in many European countries, especially in Southern Europe.
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Lubos Pastor |
Chicago Booth | Bio/Vote History | ||
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Which is why it will be difficult to push through, but still worth trying.
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Torsten Persson |
Stockholm University | Did Not Answer | Bio/Vote History | |
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Christopher Pissarides |
London School of Economics and Political Science | Did Not Answer | Bio/Vote History | |
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Richard Portes |
London Business School | Bio/Vote History | ||
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Canice Prendergast |
Chicago Booth | Bio/Vote History | ||
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Lucrezia Reichlin |
London Business School | Bio/Vote History | ||
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Rafael Repullo |
CEMFI | Bio/Vote History | ||
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Hélène Rey |
London Business School | Bio/Vote History | ||
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depends on how the transition is done (would need euro wide measures) and adoption of safe asset; regulation changes
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Antoinette Schoar |
MIT | Bio/Vote History | ||
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Daniel Sturm |
London School of Economics | Bio/Vote History | ||
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John Van Reenen |
LSE | Bio/Vote History | ||
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John Vickers |
Oxford | Bio/Vote History | ||
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Hans-Joachim Voth |
University of Zurich | Bio/Vote History | ||
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Beatrice Weder di Mauro |
The Graduate Institute, Geneva | Bio/Vote History | ||
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Depends on how it is done and on the package
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Karl Whelan |
University College Dublin | Bio/Vote History | ||
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Charles Wyplosz |
The Graduate Institute Geneva | Bio/Vote History | ||
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That's why it hasn't happened!
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Fabrizio Zilibotti |
Yale University | Did Not Answer | Bio/Vote History | |
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