Regulatory Influence on Market Conditions in the Banking Union

Research Area: Financial Regulation
Researcher: Tobias Tröger
Date: Jan 2015
Abstract:

The implementation of macro-prudential instruments in the banking union provides the European Central Bank with insufficient momentum to effectively dampen excessive lending on pivotal credit markets as the real estate mortgage markets. This is one of the insights Tobias H. Tröger, Professor of Private Law, Trade and Business Law, Jurisprudence at Goethe University, shares in the IMFS Working Paper No. 93. Tröger, Affiliated Professor of the IMFS, has investigated the “Regulatory Influence on Market Conditions in the Banking Union”.

 

Analyzing not only the macro-prudential instruments and the pertinent role of national and supranational supervisors involved in the banking union but also its resolution regime Tröger comes to the conclusion that the resolution framework provides for a discretionary ad hoc bail-in. “The existence of resolution tools doesn’t guarantee their time-consistent application by political agents”, Tröger writes. In his Working Paper he describes the bail-in instrument as a regulatory intervention which seeks to ensure the private sector loss participation in a bank’s failure. Due to the discretionary ad hoc bail-in sophisticated investors will find it difficult to gauge the actual risk of loss-participation, Tröger explains. “As a consequence, default probabilities will continue to deviate from endogenously determined bank failures”. (11.06.15)

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