European Lehman Moment Wouldn't Cause a Lehman Moment, ECB Says
- ECB database indicates no widespread contagion after bail-in
- Other banks’ losses and spillovers are small or contained
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Europe’s biggest banks can be shut down in line with the bloc’s new bank failure rules without losses snowballing and causing wider mayhem, according to a European Central Bank study.
Based on confidential bank-by-bank data, the study shows that resolving any one of the euro area’s 26 largest banks by applying the tools of the new European Union’s new rule set -- imposing losses on shareholders and creditors instead of resorting to state aid -- wouldn’t bring down another lender. Spillovers among the top group would be small and those outside of the network “contained,” according to the study by four ECB economists and one from the University of Frankfurt.