Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/171134
Authors: 
Steinkamp, Sven
Tornell, Aaron
Westermann, Frank
Year of Publication: 
2017
Series/Report no.: 
CESifo Working Paper No. 6670
Abstract: 
The Single Supervisory Mechanism was introduced to eliminate the common-pool problem and limit uncontrolled lending by national central banks (NCBs). We analyze its effectiveness. Second, we model how, by forbearing and providing refinancing credit, NCBs avoid domestic resolution costs and, instead, share potential losses within the Euro Area. This results in “evergreening” of bad loans. Third, we construct a new evergreening index based on a large worldwide survey administered by the ifo institute. Regressions show evergreening is significantly greater in the Euro Area and where banks are in distress. Finally, greater evergreening accompanies higher growth of NCB-credit and Target2-liabilities.
Subjects: 
single supervisory mechanism
evergreening
nonperforming loans
common-pool problem
JEL: 
F33
F55
E58
Document Type: 
Working Paper

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