On October 6, 2021, the Mile End Institute of Queen Mary University of London hosted a panel discussion on Dr Virág Blazsek’s recent book ‘Banking Bailout Law: A Comparative Study of the United States, United Kingdom and the European Union’ (Routledge 2020). The event consisted of a discussion of the challenges presented by bank bailouts from a variety of perspectives, bringing together commentators with expertise in law, public policy, and economics from both sides of the Atlantic.

The panel members were: Virág Blazsek, Lecturer in Commercial, Corporate and Banking Law at the University of Leeds School of Law (Leeds, UK); Guillaume Adamczyk, Economist, Head of Unit in charge of resolution planning at the EU’s Single Resolution Board (Brussels, Belgium); Professor Richard Squire, Alpin J. Cameron Chair in Law at the Fordham University School of Law (New York, NY); and Philip Wallach, Resident Scholar at the American Enterprise Institute (Washington, DC) and author of the book ‘To the Edge: Legality, Legitimacy, and the Responses to the 2008 Financial Crisis’ (Brookings, 2015)

Dr Patrick Diamond, Director of the Mile End Institute and Senior Lecturer in Public Policy at Queen Mary University, opened the event by introducing the Mile End Institute. A non-partisan organization founded by the historian Lord Hennessey, the Mile End Institute connects academics with policymakers and the public to throw light on pressing contemporary policy and political issues.

In her introductory remarks, Dr Blazsek presented her book’s central claim that bank bailouts, while undesirable, are probably unavoidable as a practical and political matter. For this reason, it makes sense for scholars and regulators to focus on the question of how to bail out banks efficiently. However, due to a regulatory and scholarly focus in the post-2008 era on the goal of avoiding future bank bailouts, the legal frameworks introduced by reform measures such as the Dodd-Frank Act and the EU’s Bank Recovery and Resolution Directive are incomplete. Consequently, the preventive aspect of banking-bailout law has developed considerably in the past decade, especially in Europe, but the crisis-management aspect remains underdeveloped. To aid regulators in developing the crisis-management aspect of their respective regulatory regimes, the book derives a catalogue of bank-bailout principles from various countries’ responses to the 2008 crisis. Notably, there has been a gradual paradigm shift on both sides of the Atlantic since late 2016, with regulators adopting a less strict anti-bailout philosophy. This shift would seem to confirm the main thesis of the book.

In his introductory comments, Mr Adamczyk observed that Dr Blazsek’s book employs economic analysis in its study of banking regulation, making the book accessible not just to lawyers but also to policymakers generally. Adamczyk then focused his comments on the remarkable developments in the EU in the area of financial regulation in the aftermath of the 2008 global crisis. Such developments have included the introduction of a common supervision regime, a common resolution regime, and a harmonized (but not yet ‘single’) deposit-guarantee scheme.

Dr Wallach emphasized the book’s practical conclusion that both financial crises and bank bailouts are unavoidable, however unpalatable that conclusion may be to many members of the public. He then described why the political system would have a hard time accepting that conclusion, and why it faces incentives to treat the complete avoidance of future bailouts as a real possibility.

Finally, Professor Squire focused on the economic rationale for central-bank liquidity support for firms that are short on cash during a financial crisis. Expressing an argument he also advanced in his March 2020 op-ed in The Washington Post, ‘U.S. Airlines Don’t Need a Bailout to Stay in Business, Squire argued that bailouts of insolvent firms are unjustified because they shift losses either to taxpayers or, if paid for through money-printing, to holders of the currency. Squire then explained how a financial crisis increases both default risk and liquidity risk on debt, and he used this distinction to show how a central bank with control over a fiat currency can deliver a public service by providing liquidity loans during a financial crisis—assuming that the borrowers are solvent and thus can repay the loans in full with interest. The problem, Squire noted, is that central banks also use their control over their fiat currencies to engage in large-scale money printing, with deleterious consequences for the incentives of individuals to work, save and invest.

After each of the panel members had offered their initial comments, Dr Blazsek noted that her book recognizes two cases in which insolvency-induced bailouts are likely to be unavoidable in the future: when a financial crisis imperils a state-owned bank; and when multiple private banks have become insolvent, creating the risk of a system-wide failure. The unavoidability of bailouts of state-run banks is a reason that governments should refrain from nationalizing private banks.

In the last part of the event, the panel members discussed differences between the governmental responses to the 2008 global financial crisis and to the current COVID crisis, and they then took questions from the audience. Most of these questions addressed the inflationary implications of the unprecedented government spending and money-printing in recent years. Dr Wallach expressed less concern in this respect than did Professor Squire, who pointed out that the US monetary base (ie, cash in circulation plus bank reserves held at the Federal Reserve, which is the equivalent of cash) is now $6.3 trillion, whereas at the start of the millennium it was only $602 billion. Squire observed that such money-printing by the Federal Reserve has implications not just for the US economy but also internationally, due to the dollar’s continuing status as a world reserve currency.

In their concluding remarks, the panel members all expressed agreement with the book’s thesis that future bank bailouts should be limited as much as possible.

A video recording of the panel discussion and following Q&A is available on the Mile End Institute’s YouTube channel here.


Virág Blazsek is a Lecturer in Commercial, Corporate and Banking Law at the University of Leeds School of Law.

Richard Squire is a Professor at Fordham Law School, New York City.


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