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ECB official cites high cost of banking crises for advanced economies

He said estimates put the median fiscal cost of a banking crisis at about 7% of GDP for advanced economies.

Reported · Written up by our desk · Central Banks

An ECB official used a conference marking the ESRB’s 15th anniversary to argue that financial crises can be extremely costly and long lasting. Speaking about the EU’s macroprudential oversight work, the ECB said the ESRB was created in response to the global financial crisis, later following warnings that risk must be overseen beyond individual firms.

The ECB official pointed to the global financial crisis and Europe’s subsequent sovereign debt crisis as evidence of how severe financial fallout can be. He added that, beyond direct fiscal damage, crises can cause broader, persistent losses in output, employment and investment by weakening confidence.

The official also referenced estimates that the median fiscal cost of a banking crisis is around 7% of GDP for advanced economies. He said regulatory reforms introduced over the past 15 years to contain crisis fallout are increasingly being called into question.

Beyond the historical framing, the ECB noted that efforts to limit the damage from crises remain under debate, as the banking industry faces an evolving risk landscape.

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