Wednesday, February 13, 2013

A Banking Union for the Euro Area. IMF Staff Discussion Note

A Banking Union for the Euro Area. By Rishi Goyal, Petya Koeva Brooks, Mahmood Pradhan, Thierry Tressel, Giovanni Dell'Ariccia, Ross Leckow, Ceyla Pazarbasioglu, and an IMF Staff Team
IMF Staff Discussion Note 13/01
February 13, 2013

Summary: The SDN elaborates the case for, and the design of, a banking union for the euro area. It discusses the benefits and costs of a banking union, presents a steady state view of the banking union, elaborates difficult transition issues, and briefly discusses broader EU issues. As such, it assesses current plans and provides advice. It is accompanied by three background technical notes that analyze in depth the various elements of the banking union: a single supervisory framework; a single resolution and common safety net; and urgent issues related to repair of weak banks in Europe.

ISBN/ISSN: 9781475521160 / 2221-030X
Stock No: SDNEA2013001

Executive summary:
  • A banking union—a single supervisory-regulatory framework, resolution mechanism, and safety net—for the euro area is the logical conclusion of the idea that integrated banking systems require integrated prudential oversight.
  • The case for a banking union for the euro area is both immediate and longer term. Moving responsibility for potential financial support and bank supervision to a shared level can reduce fragmentation of financial markets, stem deposit flight, and weaken the vicious loop of rising sovereign and bank borrowing costs. In steady state, a single framework should bring a uniformly high standard of confidence and oversight, reduce national distortions, and mitigate the buildup of concentrated risk that compromises systemic stability. Time is of the essence.
  • Progress is required on all elements. A single supervisory mechanism (SSM) must ultimately supervise all banks, with clarity on duties, powers and accountability, and adequate resources. But without common resolution and safety nets and credible backstops, an SSM alone will do little to weaken vicious sovereign-bank links; they are necessary also to limit conflicts of interest between national authorities and the SSM. A single resolution authority, with clear ex ante burden-sharing mechanisms, must have strong powers to close or restructure banks and be required to intervene well ahead of insolvency. A common resolution/insurance fund, sized to resolve some small to medium bank failures, with access to common backstops for systemic situations, would add credibility and facilitate limited industry funding.
  • The challenge for policymakers is to stem the crisis while ensuring that actions dovetail seamlessly into the future steady state. Hence, agreeing at the outset on the elements, modalities, and resources for a banking union can help avoid the pitfalls of a piecemeal approach and an outcome that is worse than at the start. The December 2012 European Council agreement on an SSM centered at the European Central Bank (ECB) is an important step, but raises challenges that should not be underestimated. Meanwhile, to delink weak sovereigns from future residual banking sector risks, it will be important to undertake as soon as possible direct recapitalization of frail domestically systemic banks by the European Stability Mechanism (ESM). Failing, non-systemic banks should be wound down at least cost, and frail, domestically systemic banks should be resuscitated by shareholders, creditors, the sovereign, and the ESM.
  • A banking union is necessary for the euro area, but accommodating the concerns of non-euro area European Union (EU) countries will augur well for consistency with the EU single market.

Views from Japan: Comments on the incidents with China's naval forces

Q&A session with "aki", a Japanese citizen, on contemporary politics

Q: Maybe you'd like to publish some short comments on the incidents with China's naval forces

A: yes, i've been interested in it indeed.

Chinese government seems pushing themselves to the edge of cliff. they are scared of that their citizens make disorder against the them, so they need to make "scapegoats" outside of the country to distract the people's view to protect themselves.

recently Chinese citizens' been tending to show their frustration to the government, because of the corruptions of politics and unfair distribution of wealth.

they are trying to make Japan the "scapegoat" now. but the government of Japan never reacted their provocations, just do what we should do in internationally "right" way. that makes China nervous - if they stimulate japan more, they will be censured in the world, but never can show their citizens compromising attitude... these days, their behavior looks like north Korea's. never look they are the economically 2nd biggest country.

need to watch it carefully. (personally, a sort of fun to see how they do)