A Protective Shield for Europe’s Banks | Moritz Schularick & Sascha Steffen

A Protective Shield for Europe’s Banks

by Moritz Schularick (University of Bonn, schularick@uni-bonn.de) and

Sascha Steffen, (Frankfurt School, S.Steffen@fs.de)

The 2008-2009 global financial crisis was a financial crisis that turned into an economic crisis. The current crisis is an economic crisis that could turn into a financial crisis. Importantly, it did not originate in the banking system that was overleveraged with bankers making bad decisions, or in the household sector that, too, was overleveraged. Instead, the virus and the unprecedented response governments are taking to contain its spreading, has an immediate impact on the real economy through the simultaneous occurrence of both demand and supply shocks. Liquidity quickly evaporates in financial markets. We are facing a global sudden stop of economic activity of unknown duration. The reality about the coming disruptions in the U.S. economy still has to sink in and the coming weeks will be very challenging in global financial markets.

 

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Studie (Englisch)