Global banking crisis as the main cause of the Eurozone crisis

Andrzej Sławiński

Abstract


The global banking crisis which caused the Eurozone crisis was unexpected. Before the banking crisis started, the prevailing view was that due to scientific advances in risk management banks would be able to continuously adjust their potential losses to their capital in order to avoid insolvency. This conviction turned out to have been false following the emergence of large financial holdings which were too big and too interconnected to be efficiently managed and supervised. In the paper it is argued that an effective banking reform should impose a strict separation between commercial, investment and mortgage banks (at least within the existing financial holdings) to make them more manageable and resolvable. The proposed reform of the European banking system, put forward in Liikanen Report, is still insufficient to shield the Eurozone from subsequent banking crises which might endanger its stability and growth prospects.

Keywords


Eurozone crisis, banking reform

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DOI: http://dx.doi.org/10.17951/h.2015.49.2.181
Date of publication: 2015-07-28 13:12:34
Date of submission: 2015-07-28 10:29:28


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