Cash outflows in crisis scenarios

16-03-2018

The large majority of the more than € 2.5 trillion of public and monetary support that euro area banks received between 2008 and 2016 was liquidity support. Liquidity has nevertheless been inadequately addressed in the legislative overhaul following the global financial crisis. This paper focuses on liquidity in resolution, the moment when the need for liquidity is most acute. Based on an assessment of the liquidity needs as well as the role and size of the central bank facilities and Single Resolution Fund, it draws the conclusion that a back-stop for the resolution fund, prompter corrective action and better information exchange between the authorities involved appear to be required in order to improve the functioning of the resolution mechanism.

The large majority of the more than € 2.5 trillion of public and monetary support that euro area banks received between 2008 and 2016 was liquidity support. Liquidity has nevertheless been inadequately addressed in the legislative overhaul following the global financial crisis. This paper focuses on liquidity in resolution, the moment when the need for liquidity is most acute. Based on an assessment of the liquidity needs as well as the role and size of the central bank facilities and Single Resolution Fund, it draws the conclusion that a back-stop for the resolution fund, prompter corrective action and better information exchange between the authorities involved appear to be required in order to improve the functioning of the resolution mechanism.