Question A:
Setting the EU rules aside, and assuming it would take 2.5% of Italy’s GDP to recapitalize its banks, the Italian government would improve financial stability in Europe if it injected this amount of public funds into its banks.
Responses
Responses weighted by each expert's confidence
Question B:
If Italy were to inject public funds into its banks without imposing losses on at least some claimants, an important cost would be the effect on future incentives (economic or political) in Europe.
Responses
Responses weighted by each expert's confidence
Question A Participant Responses
| Participant | University | Vote | Confidence | Bio/Vote History |
|---|---|---|---|---|
 Philippe Aghion |
Harvard | Bio/Vote History | ||
|
|
||||
 Franklin Allen |
Imperial College London | Bio/Vote History | ||
|
Italy's banks are significantly undercapitalized, particularly if you consider market rather than accounting capital.
|
||||
 Pol Antras |
Harvard | Bio/Vote History | ||
|
It would probably improve financial stability. A different matter is whether that should be the only principle guiding tax policy.
|
||||
 Richard Baldwin |
The Graduate Institute Geneva | Bio/Vote History | ||
|
|
||||
 Timothy J. Besley |
LSE | Bio/Vote History | ||
|
|
||||
 Olivier Blanchard |
Peterson Institute | Bio/Vote History | ||
|
if italy's debt is sustainable at 130%, it is surely sustainable at 132.5% if the financial system is functioning better.
|
||||
 Nicholas Bloom |
Stanford | Did Not Answer | Bio/Vote History | |
|
|
||||
 Richard William Blundell |
University College London | Bio/Vote History | ||
|
I mildly agree with the statement but have insufficient knowledge of the current system to make a strong statement.
|
||||
 Agnès Bénassy-Quéré |
Paris School of Economics | Bio/Vote History | ||
|
Some public recapitalization is actually needed, although maybe as much as 2.5% of GDP, and not outside EU rules.
|
||||
 Elena Carletti |
Bocconi | Bio/Vote History | ||
|
The effect of injecting public funds into the Italian banking system depends a lot on how this is done and on the investors' reactions.
|
||||
 Jean-Pierre Danthine |
Paris School of Economics | Bio/Vote History | ||
|
The counterpart should be an equity stake in the banks that the Italian State could re-sell in the future hopefully with an overall profit
|
||||
 Paul De Grauwe |
LSE | Bio/Vote History | ||
|
|
||||
 Jan Eeckhout |
UPF Barcelona | Bio/Vote History | ||
|
In the short run yes. However in the long run the financial system would be weaker.
|
||||
 Ernst Fehr |
Universität Zurich | Bio/Vote History | ||
|
In the short run stability would be higher, in the long run not if the measure is not associated with reducing future moral hazard
|
||||
 Xavier Freixas |
Barcelona GSE | Bio/Vote History | ||
|
The lack of access to finance is hindering Italy's and Europe's growth. A 2.5% is not an excessive price to pay to increase future growth.
|
||||
 Nicola Fuchs-Schündeln |
Goethe-Universität Frankfurt | Bio/Vote History | ||
|
|
||||
 Jordi Galí |
Barcelona GSE | Bio/Vote History | ||
|
|
||||
 Luis Garicano |
LSE | Bio/Vote History | ||
|
A bailout is probably good in short term for Financial Stability. But undermines new Euro BRRD framework and opens door to populists.
-see background information here -see background information here |
||||
 Francesco Giavazzi |
Bocconi | Bio/Vote History | ||
|
zombie banks would eventually drive Italy out of the euro
|
||||
 Rachel Griffith |
University of Manchester | Bio/Vote History | ||
|
|
||||
 Veronica Guerrieri |
Chicago Booth | Bio/Vote History | ||
|
|
||||
 Luigi Guiso |
Einaudi Institute for Economics and Finance | Bio/Vote History | ||
|
government debt is substantial, but increasing it by a few percentage points is less risk strategy than leaving banks under capitalized
|
||||
 Martin Hellwig |
Max Planck Institute for Research on Collective Goods | Did Not Answer | Bio/Vote History | |
|
|
||||
 Patrick Honohan |
Trinity College Dublin | Bio/Vote History | ||
|
Markets can cope with bail in on this scale. They are already discounting it.
|
||||
 Henrik Kleven |
Princeton | Bio/Vote History | ||
|
|
||||
 Jan Pieter Krahnen |
Goethe University Frankfurt | Bio/Vote History | ||
|
Inject all capital into strong banks, not weak ones, thus restructuring and scaling down the entire sector. Good plan, but will not happen.
|
||||
 Per Krusell |
Stockholm University | Bio/Vote History | ||
|
I don't have enough info to say that it would help financial institutions elsewhere; depends on cross-holdings. In long run it's likely bad.
|
||||
 Botond Kőszegi |
Central European University | Bio/Vote History | ||
|
|
||||
 Eliana La Ferrara |
Harvard Kennedy | Bio/Vote History | ||
|
|
||||
 Christian Leuz |
Chicago Booth | Bio/Vote History | ||
|
Helps in short-run but not clear in long-run w/o other reforms, as issue is also profitability & bank density; can increase sovereign risks
|
||||
 Costas Meghir |
Yale | Did Not Answer | Bio/Vote History | |
|
|
||||
 Peter Neary |
Oxford | Bio/Vote History | ||
|
Sooner or later, bullets have to be bitten, zombie banks have to be bailed out. Sooner is better. Exactly how is much harder to answer.
|
||||
 Kevin O'Rourke |
Oxford | Bio/Vote History | ||
|
|
||||
 Marco Pagano |
Università di Napoli Federico II | Bio/Vote History | ||
|
This is likely to unsettle investor confidence in Italian public debt & reactivate the bank-sovereign doom loop, with knock-on EU effects.
|
||||
 Lubos Pastor |
Chicago Booth | Bio/Vote History | ||
|
Italy has been kicking this can down the road far too long. But it’s hard to set EU rules aside, especially the new bank resolution rules.
|
||||
 Torsten Persson |
Stockholm University | Bio/Vote History | ||
|
|
||||
 Christopher Pissarides |
London School of Economics and Political Science | Bio/Vote History | ||
|
This would be dealing with the symptoms of the banking crisis in Europe and not the cause
|
||||
 Richard Portes |
London Business School | Bio/Vote History | ||
|
Weak banks are a major impediment to investment and growth and endanger financial stability. Public funds necessary though not sufficient.
|
||||
 Canice Prendergast |
Chicago Booth | Bio/Vote History | ||
|
|
||||
 Lucrezia Reichlin |
London Business School | Bio/Vote History | ||
|
|
||||
 Rafael Repullo |
CEMFI | Bio/Vote History | ||
|
Setting EU rules aside to facilitate a bailout is likely to worsen long-term financial stability in Europe.
|
||||
 Hélène Rey |
London Business School | Bio/Vote History | ||
|
NPLs are an important factor behind lack of growth, in turn an important factor behind financial instability.Issue is effect on gvt debt.
|
||||
 Antoinette Schoar |
MIT | Bio/Vote History | ||
|
|
||||
 John Van Reenen |
LSE | Bio/Vote History | ||
|
|
||||
 John Vickers |
Oxford | Bio/Vote History | ||
|
Banks have far too little capital so more is good. But another bail out would go backwards on incentives. A total mess, not only Italy.
|
||||
 Hans-Joachim Voth |
University of Zurich | Bio/Vote History | ||
|
I think this could easily backfire. Bailouts done right can be a jolly goood thing but i have at least some reservations about the prospects
|
||||
 Beatrice Weder di Mauro |
The Graduate Institute, Geneva | Bio/Vote History | ||
|
|
||||
 Karl Whelan |
University College Dublin | Bio/Vote History | ||
|
This may improve financial stability in the short-run but probably sets a bad fiscal precedent for other European governments in the future.
|
||||
 Charles Wyplosz |
The Graduate Institute Geneva | Bio/Vote History | ||
|
A number of Italian banks need to be recapitalized. If it cannot be done otherwise, the government must step in.
|
||||
 Fabrizio Zilibotti |
Yale University | Bio/Vote History | ||
|
|
||||
Question B Participant Responses
| Participant | University | Vote | Confidence | Bio/Vote History |
|---|---|---|---|---|
|
Philippe Aghion |
Harvard | Bio/Vote History | ||
|
|
||||
|
Franklin Allen |
Imperial College London | Bio/Vote History | ||
|
Shareholders and non-retail bondholders need to be penalised if a bank fails to provide the right incentives going forward.
|
||||
|
Pol Antras |
Harvard | Bio/Vote History | ||
|
It seems pretty clear that bailouts generate a moral hazard problem. They also have a significant impact on government budgets.
|
||||
|
Richard Baldwin |
The Graduate Institute Geneva | Bio/Vote History | ||
|
|
||||
|
Timothy J. Besley |
LSE | Bio/Vote History | ||
|
|
||||
|
Olivier Blanchard |
Peterson Institute | Bio/Vote History | ||
|
this is the old moral hazard argument. i believe it is relevant, but of marginal importance empirically.
|
||||
|
Nicholas Bloom |
Stanford | Did Not Answer | Bio/Vote History | |
|
|
||||
|
Richard William Blundell |
University College London | Bio/Vote History | ||
|
Agree with the statement but again not enough current knowledge of the to be very confident of this specific case.
|
||||
|
Agnès Bénassy-Quéré |
Paris School of Economics | Bio/Vote History | ||
|
In practice it is not possible to move directly from a bail out to a bail in regime, but at least the direction should be made clear.
|
||||
|
Elena Carletti |
Bocconi | Bio/Vote History | ||
|
The rules leave the possibility of injecting public funds without private losses, but I agree that this may have important signaling effects
|
||||
|
Jean-Pierre Danthine |
Paris School of Economics | Bio/Vote History | ||
|
But the cost could be containd if this is clearly viewed as a transition to a new regime where this will no longer be possible.
|
||||
|
Paul De Grauwe |
LSE | Bio/Vote History | ||
|
|
||||
|
Jan Eeckhout |
UPF Barcelona | Bio/Vote History | ||
|
|
||||
|
Ernst Fehr |
Universität Zurich | Bio/Vote History | ||
|
|
||||
|
Xavier Freixas |
Barcelona GSE | Bio/Vote History | ||
|
In the absence of significant costs to some claim holders, it will be in the interest of banks to take more risks in the future.
|
||||
|
Nicola Fuchs-Schündeln |
Goethe-Universität Frankfurt | Bio/Vote History | ||
|
|
||||
|
Jordi Galí |
Barcelona GSE | Bio/Vote History | ||
|
|
||||
|
Luis Garicano |
LSE | Bio/Vote History | ||
|
At the very least it would introduce confusion among investors as the BRRD framework requires 8% bail in.
|
||||
|
Francesco Giavazzi |
Bocconi | Bio/Vote History | ||
|
it has happened elsewhere in Europe and there is no dign of a serious deterioration of incentives
|
||||
|
Rachel Griffith |
University of Manchester | Bio/Vote History | ||
|
|
||||
|
Veronica Guerrieri |
Chicago Booth | Bio/Vote History | ||
|
|
||||
|
Luigi Guiso |
Einaudi Institute for Economics and Finance | Bio/Vote History | ||
|
Imposing losses can be severely destabilising
|
||||
|
Martin Hellwig |
Max Planck Institute for Research on Collective Goods | Did Not Answer | Bio/Vote History | |
|
|
||||
|
Patrick Honohan |
Trinity College Dublin | Bio/Vote History | ||
|
Got to get away from bailing out bank creditors with public funds. If not now, when? It's not just EU rules, cf FSB resolution principles
-see background information here |
||||
|
Henrik Kleven |
Princeton | Bio/Vote History | ||
|
|
||||
|
Jan Pieter Krahnen |
Goethe University Frankfurt | Bio/Vote History | ||
|
Europe's new regulatory architecture aims for market discipline through bail-inability of equity and junior debt. US pursues different model
-see background information here |
||||
|
Per Krusell |
Stockholm University | Bio/Vote History | ||
|
The expectations of future bailouts will likely be affected and induce excessive risk-taking.
|
||||
|
Botond Kőszegi |
Central European University | Bio/Vote History | ||
|
|
||||
|
Eliana La Ferrara |
Harvard Kennedy | Bio/Vote History | ||
|
|
||||
|
Christian Leuz |
Chicago Booth | Bio/Vote History | ||
|
Bending BRRD would create bad political incentives & undermine EU rules but excluding missold retail would not have same moral hazard effect
|
||||
|
Costas Meghir |
Yale | Did Not Answer | Bio/Vote History | |
|
|
||||
|
Peter Neary |
Oxford | Bio/Vote History | ||
|
Possibility of moral hazard in medium term versus high probability of financial instability in short term. A tough choice but a clear one.
|
||||
|
Kevin O'Rourke |
Oxford | Bio/Vote History | ||
|
|
||||
|
Marco Pagano |
Università di Napoli Federico II | Bio/Vote History | ||
|
Such massive bailout would strengthen banks' moral hazard & leave the EU overbanking problem unsolved, confirming that no exit is possible.
-see background information here -see background information here -see background information here |
||||
|
Lubos Pastor |
Chicago Booth | Bio/Vote History | ||
|
Breaking the new EU bank resolution rules within the first year would undermine the credibility of the banking union.
|
||||
|
Torsten Persson |
Stockholm University | Bio/Vote History | ||
|
|
||||
|
Christopher Pissarides |
London School of Economics and Political Science | Bio/Vote History | ||
|
It would be shifting the burden to tax payers. Claimants might think something similar in future
|
||||
|
Richard Portes |
London Business School | Bio/Vote History | ||
|
Problem in Italy is that bailing would hurt not wealthy retail bond holders, victims of misselling must be compensated.
|
||||
|
Canice Prendergast |
Chicago Booth | Bio/Vote History | ||
|
|
||||
|
Lucrezia Reichlin |
London Business School | Bio/Vote History | ||
|
not if recap but also provide incentives/rules aiming at consolidation/governance reform
|
||||
|
Rafael Repullo |
CEMFI | Bio/Vote History | ||
|
|
||||
|
Hélène Rey |
London Business School | Bio/Vote History | ||
|
Equity holders and junior bond holders should take some losses. Moral hazard can also be dealt with by taking action against management.
|
||||
|
Antoinette Schoar |
MIT | Bio/Vote History | ||
|
|
||||
|
John Van Reenen |
LSE | Bio/Vote History | ||
|
|
||||
|
John Vickers |
Oxford | Bio/Vote History | ||
|
A 100% bail-out after 8 years of "reform" would take us back to square one on TBTF.
|
||||
|
Hans-Joachim Voth |
University of Zurich | Bio/Vote History | ||
|
There is already a lot of concern in Germany about EMU rules being broken. This could be the final straw
|
||||
|
Beatrice Weder di Mauro |
The Graduate Institute, Geneva | Bio/Vote History | ||
|
|
||||
|
Karl Whelan |
University College Dublin | Bio/Vote History | ||
|
This would undermine the EU's BRRD approach though it always seemed likely loss imposition was more a policy intended for small countries.
|
||||
|
Charles Wyplosz |
The Graduate Institute Geneva | Bio/Vote History | ||
|
We have adopted bail-in rules. Ditching them aside would indeed send a terrible signal. But the rules need to be better thought through.
|
||||
|
Fabrizio Zilibotti |
Yale University | Bio/Vote History | ||
|
|
||||
