Media The European Safe Asset Debate

The European Safe Asset Debate

uploaded May 11, 2020 Views: 251 Comments: 0 Favorite: 0 CPD
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This paper explores reasons why some policymakers and researchers propose creating additional European (Eurozone) safe assets and why others think that this may be challenging. By 'safe' assets we mean ones that are as free from credit risk as possible, potentially even more creditworthy than any current (Eurozone) sovereign. A case can be made on financial stability grounds for such issuance, e.g. because it could assist in the mitigation of risks present in the maturity transformation occurring within the financial system. Less clear is whether there is the political will to support large scale issuance of such debt by central EU bodies. Nor is it clear how large might be robustly quantifiable economic benefits not linked to financial stability or broader political agendas (such as the EU's Banking Union or Capital Markets Union). Research has therefore tended to focus on other approaches (potentially including private sector solutions) that could be used to manufacture such assets, including the use of tranching. However, these approaches would likely suffer from additional costs and a complexity premium which may limit the enthusiasm of third-oartv investors to support such approaches.

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Categories: AFIR / ERM / RISK
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