Bank capital and the European recovery from the COVID-19 crisis

Arbeitspapier

Do current levels of bank capital in Europe suffice to support a swift recovery from the COVID-19 crisis? Recent research shows that a well-capitalized banking sector is a major factor driving the speed and breadth of recoveries from economic downturns. In particular, loan supply is negatively affected by low levels of capital. We estimate a capital shortfall in European banks of up to 600 billion euro in a severe scenario, and around 143 billion euro in a moderate scenario. We propose a precautionary recapitalization on the European level that puts the European Stability Mechanism (ESM) center stage. This proposal would cut through the sovereign-bank nexus, safeguard financial stability, and position the Eurozone for a quick recovery from the pandemic.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: ECONtribute Discussion Paper ; No. 017

Classification and Topics

• Classification: Wirtschaft

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Schularick, Moritz ; Steffen, Sascha ; Tröger, Tobias H.
• Event: Veröffentlichung
• (who): University of Bonn and University of Cologne, Reinhard Selten Institute (RSI)
• (where): Bonn and Cologne
• (when): 2020

Further information

• Handle: http://hdl.handle.net/10419/222343
• Last update: 10.03.2025, 11:45 AM CET