Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/221766
Authors: 
Schularick, Moritz
Steffen, Sascha
Tröger, Tobias
Year of Publication: 
2020
Series/Report no.: 
SAFE White Paper 69
Abstract: 
Do current levels of bank capital in Europe suffice to support a swift recovery from the COVID-19 crisis? Recent research shows that a well-capitalized banking sector is a major factor driving the speed and breadth of recoveries from economic downturns. In particular, loan supply is negatively affected by low levels of capital. We estimate a capital shortfall in European banks of up to 600 billion euro in a severe scenario, and around 143 billion euro in a moderate scenario. We propose a precautionary recapitalization on the European level that puts the European Stability Mechanism (ESM) center stage. This proposal would cut through the sovereign-bank nexus, safeguard financial stability, and position the Eurozone for a quick recovery from the pandemic.
Subjects: 
bank capital
financial stablity
COVID-19
Document Type: 
Working Paper

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