SOGEI website background

A review on ESBies - The senior tranche of sovereign bond-backed securities

The goals of a euro-wide safe asset are to increase the supply of safe assets and to weaken the bank-sovereign nexus. Both goals help enhance the financial stability in the euro area. To achieve these goals, economists have made different proposals to create a new safe finance instrument without joint liabilities among member states. This background document provides a review on the proposals of European Safe Bonds (ESBies) from Brunnermeier et al. (2011, 2017), which have recently been extensively reviewed by a High-Level Task Force of the European Systemic Risk Board (ESRB 2018). Our review on ESBies suggests that they might increase financial stability in the euro area. ESBies can achieve the goals of increasing the supply of safe assets and weakening the sovereign-bank nexus. […]