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Policy notes, research contributions and podcasts
The Architecture of Bank Liquidity: Balancing Assets, Bail-ins and State Support
Mathias Dewatripont and Jean Tirole
August 2025
This paper proposes an integrated theoretical framework for rethinking bank liquidity regulation, taking into account both asset liquidity and loss absorption capacity on the liability side. It introduces the concept of a Liquidity-Weighted Buffer, which aims to better calibrate liquidity requirements in the face of ordinary shocks, while reserving public intervention for extreme crises. The analysis also highlights certain inconsistencies in current regulatory frameworks and proposes ways to strengthen financial stability while preserving the role of banks in financing the economy.
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In the new geopolitical context, Europe’s banking discussions need to go beyond competitiveness
Mathias Dewatripont, Peter Praet, André Sapir and Guntram Wolff
July 2025This article argues that current discussions on the competitiveness of the European banking sector must be placed in a broader geopolitical context. While regulatory simplification is useful, it is not sufficient to address the challenges posed by Europe's dependence on the dollar-centered financial system, the growing complexity of global financial networks, and the rise of new technologies such as stablecoins. The authors advocate a strategy that combines improving banking competitiveness, strengthening the resilience of the European financial system, and promoting the international role of the euro in order to reduce Europe's vulnerability to external shocks and strengthen confidence in its financial institutions.
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Shareholders in a Disrupted World: Final Reflections and Insights from the 2025 ECGI IESE Conference
Marco Becht
May 2025This article draws lessons from a conference on the role and responsibilities of shareholders in an economic context marked by significant disruption. It highlights the questioning of responsible investment commitments, particularly following recent political developments that have led some large asset managers to withdraw from climate initiatives and weaken ESG criteria, while other players such as pension funds are maintaining their commitments. The article also highlights the regulatory and political pressures weighing on financial players and calls for a rethink of how shareholders—particularly those who wish to promote sustainable governance—can exert their influence in an uncertain environment by adopting more active and courageous strategies.
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Divestment: More Than Just Selling Shares
Marco Becht
May 2025This article challenges the traditional idea that divestment — i.e. the sale of shares in sectors such as fossil fuels — has little effect on companies. It proposes viewing divestment as a form of public expression (“voice through divestment”), which sends a strong signal about social preferences and can influence perceptions of carbon-related risks. When an announcement of divestment resonates in the media and on social networks, it can not only affect the share prices of the targeted companies, but also increase the perceived risk for all carbon emitters, attracting the attention of other investors. The article thus shows that divestment can have a broader impact than just a financial transaction by reinforcing a social and economic narrative that weighs on the markets.
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ESG: does the political shift mean business will lose out?
Marco Becht and Helen Jenkins
April 2025
In this episode of the Top of the Agenda podcast, the speakers look back at how the concept of ESG has evolved since its emergence in the early 2000s and analyse recent changes in the political and economic landscape. The discussion explores the implications of these changes for businesses and investors, as well as the future prospects for environmental, social and governance criteria. The episode offers strategic insights into the role of ESG in a changing regulatory and geopolitical environment.
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Analysing the world’s largest asset owner’s approach to ESG engagement
Marco Becht, Julian R Franks, Hideaki Miyajima and Kazunori Suzuki
November 2023This article examines the ESG engagement approach of the Principles for Responsible Investment, focusing in particular on the example of Japan's Government Pension Investment Fund (GPIF), the world's largest pension fund. It shows that combining a strategy based on ESG index inclusion and exclusion with remunerated engagement by asset managers can significantly improve the ESG scores of companies in the portfolio. The analysis highlights that paying managers to actively engage with companies and integrate these objectives into investment decisions contributed to a notable improvement in the ESG performance of Japanese companies compared to other countries between 2017 and 2023. These results suggest that well-structured engagement practices can promote real improvements in sustainability while aligning investment strategies with long-term risks and opportunities.
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Does Paying Passive Managers to Engage Improve ESG Performance?
Marco Becht, Julian R. Franks, Hideaki Miyajima and Kazunori Suzuki
July 2023This paper analyses an experiment conducted by the Japanese pension fund GPIF to promote responsible investment. By entrusting its largest passive manager with a paid mandate to engage with companies and favouring those with the best ESG scores, the fund improved the ESG performance of Japanese companies. The study shows that these initiatives not only strengthened companies' sustainable practices, but also had measurable effects on the market, contributing to a more pronounced increase in ESG scores in Japan compared to other countries.
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Voice Through Divestment
Marco Becht, Anete Pajuste and Anna Toniolo
June 2023This article offers a new interpretation of responsible divestment, showing that it can act as a form of expression (“voice”) capable of influencing social preferences and market behaviour, beyond the simple sale of shares. It highlights the Fossil Free movement, whose viral divestment announcements have contributed to depressing the share prices of high-carbon emitting companies, increasing reputational and stranded asset risks, and encouraging net-zero commitments by countries, regions and companies. The analysis emphasises that these effects are explained more by the shift in the economic and social narrative around climate risk than by selling pressure on share prices themselves.
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The Commission’s Crisis Management and Deposit Insurance proposal has the potential to significantly improve banking resolution in the EU
Mathias Dewatripont and Peter Praet
May 2023This article analyses the European Commission's proposal to reform the framework for managing banking crises and deposit insurance. The authors believe that this reform could strengthen the European Union's ability to resolve failing banks while protecting depositors and preserving financial stability. They point out that the new framework recognises that medium-sized banks often have insufficient bail-in capital and proposes to facilitate the use of national deposit insurance mechanisms to fill these gaps. The article also stresses the need to accompany this flexibility with preventive measures, such as strengthening loss absorption capacities, stricter prudential supervision and increased oversight, in order to reduce crisis risks and moral hazard.
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The Silicon Valley Bank collapse: Prudential regulation lessons for Europe and the world
Mathias Dewatripont, Peter Praet and André Sapir
March 2023This article draws lessons from the collapse of Silicon Valley Bank (SVB) in 2023 for the prudential regulation of banks in Europe and around the world. It shows that this event highlights shortcomings in banking supervision and resolution frameworks, while emphasising the need to adapt the protection of short-term deposits – which are essential to the functioning of businesses – beyond the current insurance limits alone. The authors propose improving the European bank resolution framework and adjusting the coverage of corporate deposits in order to strengthen financial stability and better protect the real economy from future failures.
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Voice Through Divestment
Marco Becht, Anete Pajuste and Anna Toniolo
March 2023This article analyses the strategic impact of responsible divestment, particularly in the context of the Go Fossil Free movement. It shows that divestment announcements have not only affected the share prices of high-carbon emitting companies, but have also helped to reinforce the perception of climate risk and encourage some companies to adopt net zero commitments. The study highlights the role of divestment as a tool for governance and risk management, going beyond its simple moral dimension to actively influence the behaviour of markets and companies.
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Leaving irresponsible capitalism behind
Marco Becht
November 2022
This article explores how investors can help move beyond capitalism deemed irresponsible by further integrating environmental, social and governance (ESG) issues into their decisions. It highlights the limitations of traditional approaches focused on short-term financial returns and argues for a redefinition of shareholder responsibility to encourage more sustainable and equitable corporate practices. The author also discusses engagement and divestment mechanisms as means of exerting positive influence on corporate behaviour, emphasising that these tools can play an important role in the transition to a more responsible economic system.
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Urgent reform of the EU resolution framework is needed
Mathias Dewatripont, Lucrezia Reichlin and André Sapir
April 2021This article highlights that the current bank resolution framework within the European Union, although essential to banking union, has significant shortcomings that limit its effectiveness. The authors highlight two major areas in need of reform: the bail-in regime (absorption of losses by creditors) and cross-border bank resolution mechanisms, which are struggling to function in practice. They explain that certain European rules, such as the requirement for 8% of bail-inable liabilities, are difficult to apply without undermining financial stability, and that national authorities continue to restrict the resolution of foreign subsidiaries, which runs counter to the objectives of banking union. The article proposes ways to make resolution mechanisms more credible and strengthen coordination between countries in order to better cope with future banking crises.
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When Trust is Not Enough: Bank Resolution, SPE, Ring-fencing and Group Support
Mathias Dewatripont, Marie Montigny, Gregory Nguyen
May 2021
This discussion paper analyses the differences between Single Point of Entry and Multiple Point of Entry bank resolution models, examining in particular the support that subsidiaries can expect from their parent companies in the event of a crisis or insolvency. It highlights the limitations of parental support in these frameworks and emphasises the importance of maintaining protection mechanisms to safeguard the interests of subsidiaries. The study also explores ways to strengthen support mechanisms and limit the use of financial compartmentalisation measures between banking entities.
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How to provide liquidity to banks after resolution in Europe's banking union
Maria Demertzis, Inês Gonçalves Raposo, Pia Hüttl, Guntram Wolff
November 2018
This paper examines the liquidity challenges that banks may face following a resolution procedure within the European banking union. It analyses the role of central banks in maintaining financial stability when traditional financing mechanisms are no longer sufficient to restore market confidence. The study proposes ways of putting in place appropriate safeguards to secure the provision of liquidity in times of banking crisis, while protecting the public interest and the smooth functioning of the financial system.
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