Join us for the next event of the 'Finance in the Tuscan Hills' seminar series, where we host Enrico Perotti, Professor of International Finance at the University of Amsterdam.

Financial stability depends on a bank’s ability to withstand shocks in advance (Pillar I buffers) and respond effectively afterward to contain any breaches (Pillar II intervention), rather than simply preparing for a bailout (bank resolution). Currently, when a bank faces distress, it often lacks resilience against outflows. Supervisors seldom employ prompt corrective tools, fearing these might trigger bank runs, making these tools ineffective and creating an intervention gap until a default forces the bank into resolution. Regulatory leniency can obscure risk incentives, worsening losses and leading to chaotic defaults.

In his paper, Perotti examines existing and proposed resilience tools, such as usable buffers, prepositioned collateral, and redemption charges, aimed at supporting recovery, using the analogy of river dike stability and flood control. Bank resilience resembles dike resilience, as both are designed to respond swiftly to escalating shocks. Just as flood control rapidly mobilizes reserves to manage dike overflow, bank resilience relies on quick responses to prevent escalation. However, timely intervention is only credible if incentives for bank runs are controlled. Tools like prepositioned collateral and contingent redemption charges can help prevent self-fulfilling crises, allowing room for decisive action. The ultimate objective is to support viable banks in recovery, reducing the need for resolution and bailout.

Enrico Perotti (PhD Finance at MIT, 1990) is Professor of International Finance at the University of Amsterdam. His research has appeared in top journals in economics, finance and law, focusing since 2008 on financial regulation, Next to his research he serves as senior advisor on financial stability to the DNB board and as member of the ESRB Advisory Scientific Committee at the ECB. He is currently advising the FSB on policy reform options.  

Previously he served as advisor to the EU Commission, the European Central Bank and the Federal Reserve and the Bank of England. He served as Houblon-Normal Fellow at the Bank of England and Duisenberg Fellow at the ECB. 

His recent relevant publications and media appearances include: Pay, Stay or Delay? How too Settle a Run (Review of Financial Studies, 2023); Capital forbearance in the bank recovery and resolution game , (Journal of Financial Economics (2022). "The Swiss authorities enforced a legitimate going concern conversion", VoxEU column, 22 Mar 2023 Learning from Silicon Valley Bank’s uninsured deposit run (VOXEU, May 2023); Measures to prevent runs on solvent banks (VoxEU, July 2023).

The FBF seminar series ‘Finance in the Tuscan Hills’ focuses on financial sector issues and aims to bring together researchers from across the EUI community, who share an interest in these subjects.

Please note that this seminar is open ONLY to EUI members.