The bail-in principle – responsible banks for a sound financial system
Date Issued
2019
Author(s)
Zafiroski, Jovan
Abstract
Since January 2016 the Single Resolution Mechanism became fully operational. As a
second pillar of the European banking union it should provide equal treatment of the
credit institutions when they are facing problems and when a bank failure is probable
or occurs. Also, the Single Resolution Mechanism contributes to broader objectives of
the banking union for achievement of deeper market integration and breaking the link
between the sovereigns and banks. The financial crisis from 2008 has shown that even
failures of the big international banks are possible. It is difficult to justify the situation
when the bank’s profits are always private and are distributed between the shareholders
and the management while loses are covered by taxpayers. This dilemma goes beyond
the problems of morality and has direct effects of the countries’ public finances and the
level of public debt. It is hard to justify the bank bail-outs. The negative consequences of
the problems facing credit institutions were more emphasized on the EU financial mar ket. The newly created Single Resolution Mechanism includes a solution to this problem
which puts the responsibility and consequences of the bank difficulties to the bank itself.
Thus, the newly created bail-in principle gives power to the resolution authorities to
cancel shares and to write down or to convert liabilities of a bank. The text explains the
bail-in principle and discusses the possible effects that it might have on the stability of
the financial sector in the Eurozone. Also, the effects of the digitalization of money and
the reduction of cash in the transactions are examined.
second pillar of the European banking union it should provide equal treatment of the
credit institutions when they are facing problems and when a bank failure is probable
or occurs. Also, the Single Resolution Mechanism contributes to broader objectives of
the banking union for achievement of deeper market integration and breaking the link
between the sovereigns and banks. The financial crisis from 2008 has shown that even
failures of the big international banks are possible. It is difficult to justify the situation
when the bank’s profits are always private and are distributed between the shareholders
and the management while loses are covered by taxpayers. This dilemma goes beyond
the problems of morality and has direct effects of the countries’ public finances and the
level of public debt. It is hard to justify the bank bail-outs. The negative consequences of
the problems facing credit institutions were more emphasized on the EU financial mar ket. The newly created Single Resolution Mechanism includes a solution to this problem
which puts the responsibility and consequences of the bank difficulties to the bank itself.
Thus, the newly created bail-in principle gives power to the resolution authorities to
cancel shares and to write down or to convert liabilities of a bank. The text explains the
bail-in principle and discusses the possible effects that it might have on the stability of
the financial sector in the Eurozone. Also, the effects of the digitalization of money and
the reduction of cash in the transactions are examined.
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Rijeka EDT 2019.pdf
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