Viral Acharya, Lea Borchert, Maximilian Jager, Sascha Steffen, 10 August 2020

During the 2008/09 global financial crisis, European governments bailed out a large number of banks that were severely affected by the crisis. This column documents how the design of the bailout policy was determined by the fiscal capacity of the respective country. Fiscally weak countries recapitalised banks insufficiently, causing undercapitalised banks to shift their assets from loans to risky sovereign debt and engage in zombie lending, resulting in weaker overall credit supply, elevated risk in the banking sector, and, eventually, greater reliance on liquidity support from the ECB. Kicking the can down the road in 2008/09 thus sowed the seeds of the future banking crisis. These results have potential implications for the ongoing COVID-19 pandemic as, if the economic situation further deteriorates, banking sector stability is likely to be adversely affected.

Maurice Obstfeld, Romain Duval, 10 January 2018

The widespread and persistent productivity slowdown witnessed since the Global Crisis had already begun in advanced and low-income countries prior to the crisis. This column argues that the crisis amplified the slowdown by creating ‘productivity hysteresis’, and that monetary policy played an ambiguous role. Policymakers must now address the legacies of the crisis through innovation, education policies, and structural reforms.

Fabiano Schivardi, Enrico Sette, Guido Tabellini, 18 July 2017

There is a widespread perception that under-capitalised banks can prolong crises by misallocating credit to weaker firms and restraining credit to healthy borrowers. This column explores the extent and consequences of credit misallocation in Italy during and after the Eurozone Crisis. Bank undercapitalisation may have been costly in terms of misallocation of capital and productive efficiency in the medium term due to the higher exit of healthy firms, but it had at best a limited role in aggravating the recession induced by the Eurozone Crisis.

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