Eurozone banking integration outpaced national resolution, producing too-big-to-bail systemic risk

Evidence

Now, either because they really believed that the untested ECB had magically removed all risk from the system or saw the possibilities of a moral hazard trade, or both, major European banks took on as much periphery sovereign debt (and other periphery assets) as they could. Indeed, as we shall see below, these banks were incentivized by the European Commission to get their hands on as many periphery bonds as they could and use them as collateral in repo transactions, thereby upping the demand for them still further. There was, however, one slight flaw in the plan. While bank lending and borrowing may be cross-border in the Eurozone, bank resolution and bailout responsibilities (notwithstanding the 2012 proposal for an EU banking union, which does little to fundamentally address these problems) are still national. So, while any individual bank could play this moral hazard trade, if they all did it, all at once, then what was individually too big to fail became very quickly too big to bail as a whole. Once again, the dynamics of the system were different from those of the sum of the parts. — Mark Blyth, Austerity, 227

Categorization

• XREF: The cross-border banking / national bailout mismatch is the structural core Mattei and later EU federalists build on; also connects directly to the US lessons chapter. — connects to: European austerity serves to reserve sovereign balance-sheet space for too-big-to-bail bank rescues — Mark Blyth, Austerity: The History of a Dangerous…, 617; European banks are too big for any single government to bail out — Mark Blyth, Austerity: The History of a Dangerous…, 37; Greek contagion to Ireland and Spain threatened the whole Eurozone — Mark Blyth, Austerity: The History of a Dangerous…, 191 (+8 more)
• QUESTION: Worth chasing whether the 2012 banking union proposal actually changed this national-resolution mismatch, since Blyth dismisses it as insufficient.

Broader Connections

• European banks were too large for any national sovereign to rescue #corroborates (0.95) — Mark Blyth, Austerity, 231
• Too-big-to-fail bank concentration worsened after the 2008 crisis #expands (0.80) — Wendy Brown, Undoing the Demos, 736
• Euro governance rules target sovereigns while entirely ignoring private bank risk #complicates (0.75) — Mark Blyth, Austerity, 254
• Bank nationalization was treated as off-limits even amid collapse proceedings #complicates (0.75) — Philip Mirowski, Never Let a Serious Crisis Go to Waste, 944