Deutsche Bundesbank – Learning from European cooperation in the field of financial stability

The Corona pandemic exposes the fragilities of our societies and economies. Policymakers at all levels are taking decisive action to protect firms and households. Common European action is highly desirable and feasible. We need to evoke the positive forces that give us strength. We need to find pragmatic solutions. European cooperation is indeed working better than often claimed. Financial stability is a prominent example: a lot has been achieved since the global financial crisis. We can be proud of these developments and learn from this experience.

Many people are asking themselves “what is the EU doing to tackle the crisis?” In our policy field, financial stability, a lot is being done.

A well-functioning financial system is not an end in itself. It is there to make the economy work; to foster sound investment and saving; to ensure safe and efficient payments.

Prior to the outbreak of the pandemic, the resilience of the banking sector had been strengthened, thanks to the reforms of the past decade. European and national supervisors have now been able to release buffers of capital and liquidity in order to allow banks to lend more. Supervisors also recommended to financial institutions not to finance payouts, in order to increase their resilience. All this has been done by exploiting flexibility in the rules; it does not mean reversing the reforms, which have made banks more robust ahead of the crisis.

In line with their responsibilities and mandate, the ECB and national central banks have acted promptly and decisively to avoid a downward spiral in price expectations and to ensure a smooth flow of liquidity to firms and orderly conditions on markets.

 

Read the full guest contribution at: https://www.bundesbank.de/en/press/contributions/learning-from-european-cooperation-in-the-field-of-financial-stability-832294.