Lecture by Sabine Lautenschläger – ‘The Banks and the Market’
On 15 March 2018, Sabine Lautenschläger (Member of the Executive Board & Vice-Chair of the Supervisory Board of the European Central Bank) visited us to deliver a lecture entitled ‘The Banks and the Market’, which took place in Florence at Palazzo Incontri.
In her speech, Ms. Lautenschläger argued that banks should always be allowed to fail in order to maintain a healthy economic system. This should have happened particularly before the crisis: ‘Obviously, it was a problem that banks failed during the crisis. But taking a long-term view, I would argue that it was also a problem that many weak and under-capitalised banks that did not have a viable business model did not fail. They did not fail prior to the crisis – even though they probably should have – and they could not fail during the crisis either.‘
She also outlined possible paths to explore in order to avoid that bail-ins protect those retail investors who were not aware, or not made aware, of the risks were taking. These paths include financial education, a minimum threshold of €100.000 to invest in subordinated debt instruments; additionally, Ms.Lautenschläger welcomed ‘proposals which foresee the introduction of non-preferred senior debt instruments and a general depositor preference rule. This would further facilitate bail-ins‘.
Speaking about the tasks assigned to supervisors, Ms. Lautenschläger called for clarity about which tools correspond to which supervisory taks, and highlighted that proportionality is the key principle guiding supervisory discretion in deciding if a bank is failing or likely to fail.
Additonally, Ms. Lautenschläger asked for the establishment of a moratorium system in all euro area countries: ‘Moratoriums are not part of the European toolbox. In some countries they do exist; in others, they don’t. And in any case, they are not harmonised. We need harmonised, short-term moratoriums in all euro area countries‘.
Ms. Lautenschläger’s speech was introduced by Professor Elena Carletti (Scientific Director, Florence School of Banking and Finance), and was followed by a questions and answers session with the public moderated by Professor Emilio Barucci (Full professor of Financial Mathematics, Polytechnic University of Milan).
The event was organised in cooperation with Fondazione CESIFIN and Fondazione CR Firenze, represented in the opening remarks by Professor Giuseppe Morbidelli (President, Fondazione CESIFIN Alberto Predieri) and Mr. Giuseppe Rogantini-Picco (Member of the Board, Fondazione CR Firenze), joined in their remarks by Ambassador Vincenzo Grassi (Secretary General, European University Institute).