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How to provide liquidity to banks after resolution in Europe’s banking union

Maria Demertzis, Inês Goncalves Raposo, Pia Hüttl and Guntram B. Wolff, (2018), «How to provide liquidity to banks after resolution in Europe’s banking union»European Parliament, Committee on Economic and Monetary Affaris, 22 Νοεμβρίου

When banks are deemed to be ‘failing or likely to fail’ in the European Union’s banking union, they are either put into insolvency/liquidation or enter a ‘resolution scheme’. The Single Supervisory Mechanism (SSM) typically decides that a bank is failing or likely to fail after consulting the Single Resolution Board (SRB).

Funding of banks after resolution has recently become part of the euro-area political debate following the resolution of Banco Popular. Conceptually, two aspects have to be distinguished when considering funding of banks in resolution: how to restore solvency and how to provide liquidity. Solvency is restored through bail-in and recapitalisation if needed, including from public funds. Liquidity needs, however, need to be met differently.

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