Moral Hazard, central bankers, and Banking Union: professional dissensus and the politics of European financial system stability

Figures & data

Figure 1. Number of documents, by speaker.

Source: Authors

Figure 2. Number of documents, by year.

Source: Authors

Figure 3. The word cloud of moral hazard in the case of the Bundesbank, by frequency of words.

Source: Authors

Figure 4. The word cloud of moral hazard in the case of the ECB, by frequency of words.

Source: Authors

Table 1. List of close synonyms, by case study.

Bundesbank

ECB

Changed risk tolerance Disincentives Incentive and information problems Inefficient monitoring incentives Moral temptation Risk appetite Risk-prone behaviour Risk-taking Risky behaviour Systemic risk The ‘originate-to-distribute’ business model The ‘too big to fail’ problem Time inconsistency To gamble Unfair burden sharing Wrong incentives

Adverse incentives Adverse selection Anti-social behaviour Appetite for risk Asymmetry of information Disincentives Excessive risk-taking Excessive risk-taking ex post Externalities Free riding Herd behaviour Imprudent risk-taking Inappropriate risk-taking Increased risk-taking Irresponsible business decisions Market distortion Market failures Misaligned incentives Mismanagement of risk Opportunistic behaviour Over-exposures Regulatory forbearance Risk-taking behaviour Risk-taking incentives Risky strategies Sheer greed Speculative positions The hunt for yield Too big to fail Too much risk Weaken incentives

Source: Authors.

Table 2. List of anti-concepts (antonymous), by case study.

Bundesbank	ECB
Correct incentives Greater caution Internalised externalities Right incentive mechanisms	Accountability Appropriate incentives Correct incentives Discipline Exogenous shock Market discipline Prudent risk management Responsible behaviour Safe and sound conduct of business Stability

Source: Authors.

Table 3. What it is, by case study.

	Bundesbank	ECB	Total
The fact of acting recklessly	0	8	8
The negative effect on incentives	3	5	8
A situation in which a reckless action is made more likely	2	6	8
A situation in which there are incentives for a reckless action	7	0	7
To speculate or gamble on escaping liability in bad times	3	0	3
The fact of rewarding a reckless action or behaviour	2	1	3
The belief that vulnerability to rare events decreases	0	2	2
A situation in which there is no incentives to monitor	2	0	2
A situation in which monitoring incentives are inefficient	1	0	1
To assume support in bad times	1	0	1
A change in behaviour	1	0	1
The calculation of support in case of failure	1	0	1
The possibility of acting recklessly	0	1	1
The possibility of generating adverse incentives	0	1	1
The possible effect on future incentives	0	1	1
The distortion of investment decisions	1	0	1
SUM	24	25	49
N = Documents	44	82	126

Source: Authors. The numbers indicate the frequency of coded segments.

Table 4. What actions or behaviours / what incentives, by case study.

	Bundesbank	ECB	Total
Taking risks or more risks	6	4	10
Taking too much risks	2	7	9
(Not) adjusting or reforming	3	6	9
(Not) monitoring	3	0	3
Opportunistic behaviour	1	1	2
SUM	15	18	33
N = Documents	44	82	126

Source: Authors. The numbers indicate the frequency of coded segments.

Table 5. Whose actions or incentives, by case study.

	Bundesbank	ECB	Total
Financial market participants
Systemically Important Financial Institutions (SIFIs)	13	11	24
Banks	3	16	19
The originator of the credit risk	4	0	4
Financial market participants	1	3	4
Borrowers	0	2	2
Investors	1	1	2
Shareholders and creditors	1	0	1
The public issuers	0	1	1
Banking sector	1	0	1
Financial markets	0	1	1
Shareholders and managers	0	1	1
The owner	1	0	1
A variety of market players	0	1	1
Financial sector	0	1	1
Financial intermediaries	0	1	1
Financial institutions	0	1	1
	25	40	65
Public authorities
Countries	1	3	4
Governments	2	1	3
Policymakers	1	0	1
The fiscal authorities	0	1	1
The political authorities	0	1	1
	4	6	10
Actors
Governments, firms, and households	1	0	1
Banks or sovereigns	0	1	1
Agents	0	1	1
Institutions	0	1	1
	1	3	4
SUM	30	49	79
N = Documents	44	82	126

Source: Authors. The numbers indicate the frequency of coded segments.

Table 6. What causes it, by case study.

	Bundesbank	ECB	Total
Public intervention
Supportive measures in bad times	5	6	11
Bailouts and emergency assistance	1	6	7
Only mitigation or unconditional support	0	4	4
For too long	0	3	3
Downside protection mechanisms	0	2	2
Crisis management framework	0	1	1
	6	22	28
Central bank actions
Lender of Last Resort (LOLR)	1	4	5
Non-standard measures	1	4	5
Accommodative monetary policy	2	3	5
Asymmetric policy (‘Mopping-up’)	2	2	4
Fiscal dominance	0	2	2
Financial dominance	0	1	1
	6	16	22
Institutional reforms post-2007 or related
EFSF or ESM	1	5	6
The European Stabilization Fund (ESF)	4	1	5
EDIS	1	2	3
Banking consolidation	0	1	1
Bail-in	0	1	1
	6	10	16
Ex ante approach	2	6	8
Insurance scheme	0	4	4
Creating expectation of assistance	1	2	3
	3	12	15
Any type of public intervention	0	3	3
When the principle of liability does not apply	2	0	2
Unclear bank resolution regimes or rules on liability	1	1	2
Confusion of roles	0	1	1
Doing nothing	0	1	1
Creating a fuzzy set of incentives	0	1	1
	40	52	92
Financial sector characteristics and activities
Too big to fail financial institutions	14	9	23
Securitization of credit risk	7	1	8
Too large financial sector	0	3	3
Unethical	0	2	2
	21	15	36
Other
Common exposure to aggregate or macroeconomic risks	1	0	1
The currency union	1	0	1
Asymmetry of information	0	1	1
	2	1	3
SUM	63	67	130
N = Documents	44	82	126

Source: Authors. The numbers indicate the frequency of coded segments.

Table 7. What it does, by case study.

	Bundesbank	ECB	Total
Instability	10	7	17
Reckless action	2	4	6
Unfair distribution of costs	5	0	5
Distortion of market efficiency	0	3	3
Holding hostage the economic well-being of people	1	1	2
Delegitimizing and undermining the credibility of institutions	0	1	1
SUM	18	16	34
N = Documents	44	82	126

Source: Authors. The numbers indicate the frequency of coded segments.

Table 8. How to deal with it, by case study.

	Bundesbank	ECB	Total
Regulate the banking sector to make it safer	22	12	34
Internalization of costs within private sector	16	8	24
Monitoring or supervision	9	5	14
Provide appropriate incentives	2	11	13
Conditionality	0	11	11
Market discipline	3	6	9
A matter of right timing	1	5	6
Criteria to be eligible	5	0	5
Partial insurance	2	3	5
‘Leaning against the wind’	0	4	4
Respect the principle of liability	4	0	4
Clearly distribute roles and duties	0	3	3
Sanctions or penalty	0	3	3
Improve corporate governance	0	3	3
Temporary support	1	1	2
Reputation mechanisms	2	0	2
Facilitate transnational cooperation	0	2	2
Ensure accountability and transparency	2	0	2
Pragmatism	0	2	2
Ambiguity about terms of support	0	2	2
Burden sharing	1	0	1
Take it into account	1	0	1
Risk reduction	1	0	1
Use discretionary scope responsibly	1	0	1
Build confidence or trust	0	1	1
Further research	0	1	1
Improve consistency	0	1	1
SUM	73	84	157
N = Documents	44	82	126

Source: Authors. The numbers indicate the frequency of coded segments.

Table 9. Positions on financial stability, by case study.

	Bundesbank	ECB	Total
On Banking Union
Resolution	20	22	42
Supervision	9	17	26
Regulation	9	7	16
(E)DIS	3	7	10
BU / resilience of the financial system in general terms	4	3	7
	44	56	100
Responsibility of the ECB / central bank in financial stability	2	21	23
For financial safety nets available to countries	0	10	10
For a reliable way to identify systemic relevance	8	0	8
For a central fiscal capacity	0	4	4
For the Volcker rule	2	1	3
Problematic asymmetric institutional design	2	0	2
End the nexus between banks and sovereigns	2	0	2
Permanent crisis management mechanism: design matters	0	2	2
Strict conditionality	1	0	1
Exceptional cases must not become the rule	1	0	1
In principle: no bail-out, no monetary financing	1	0	1
Toughening SGP	1	0	1
For the implementation of a CCP for OTC derivatives	1	0	1
For CMU	0	1	1
For ‘Living wills’	1	0	1
International regime only for international institutions	1	0	1
Sovereign risk as paramount importance	1	0	1
Refrain from targeting asset prices	0	1	1
Bailing out banks is not the best response	0	1	1
For direct bank recapitalization by ESM	0	1	1
SUM	69	98	167
N = Documents	44	82	126

Source: Authors. The numbers indicate the frequency of coded segments.

Table 10. Main discursive strategies around moral hazard to legitimise positions.

Common strategies
Conformity to academic knowledge Continuity with the past
ECB	Bundesbank
Complexity of the social world Moderate positions Minimize moral hazard Moral hazard as mostly theoretical Constructing the ECB as in the central banks group Labeling the ECB positively	Credible, prudent, and fair positions Exaggerate moral hazard Moral hazard as an empirical phenomenon Economists group (labeled as the ones who understand moral hazard) Taxpayers group (labeled as victims)

Source: Authors.