The financial stability guarantee fund has come to "escort" the increase of leverage. On March 2, 2022, chairman Guo Shuqing said in his speech that "decisive achievements have been made in the battle to prevent and resolve financial risks", and on March 25, the State Council requested that "(2022) the relevant work of raising financial stability guarantee fund should be completed by the end of September". Combined with the rising downward pressure on the economy since 2022, the policy signal behind it may be to reduce the risk premium of the market and create conditions for steady growth and leverage in 2022.
Financial stability fund is a common tool for European and American developed economies to build a financial safety net. From the experience of Europe and America, how effective are these tools in stabilizing relevant financial markets and economies?
Two major instruments of the European financial stability fund: the European stability fund (EFSF) + single resolution Fund (SRF). After the baptism of the financial crisis and the European debt crisis, the EU attaches great importance to financial stability. The European financial stability fund (later further evolved into a permanent European stability mechanism, ESM) and the single disposal fund were established in May 2010 and January 2016 respectively. The focus of the two is different: the former is mainly aimed at the sovereign debt risk of Member States; The latter focuses on dealing with troubled banks in Member States (European Union's banking Union).
The establishment of these two instruments is related to Europe's own risk factors. The economic fundamentals of the 27 member states within the EU are uneven and there is no unified and coordinated financial institution, which leads to the risk of sovereign bonds of debt ridden marginal countries easily evolving into a systemic risk sweeping the eurozone and the EU. The outbreak of the European debt crisis is a typical example. In addition, unlike the United States, indirect channels such as banks are the main financing methods in Europe. Ensuring the stability of the bank credit system is an important guarantee for maintaining the European unified market.
Due to the short establishment time of the single disposal Fund (from 2016), the number and importance of banks disposed of are insufficient, and the impact on the market is limited. We mainly review the impact of the European stability fund (mechanism) on the capital market and economy:
The launch of the European stability fund (including the subsequent European stability mechanism) has reduced the sovereign debt risk and premium level of EU Member States. After the European Financial Stability Facility (EFSF), the eurozone established a permanent "firewall" European stability mechanism (ESM) in October 2012 to rescue member states in financial difficulties. Although the number of real shots is not many, the improvement of the financial safety net has brought a significant decline in the risk premium center of the European bond market (generally, the German bond interest rate is the risk-free interest rate in Europe).
After the launch of the European stability fund, the government leverage first rose and then fell. Before 2020, EFSF and ESM paid a total of 295 billion euros to five members (Ireland, Spain, Portugal, Cyprus and Greece). With the help of the stabilization fund, these countries successfully got out of their financial difficulties, regained the trust of financial markets and were able to finance at a lower interest rate. However, from the perspective of changes in government leverage ratio, both the eurozone and the countries receiving bailouts have experienced a process of first rising (generally lasting for two years) and then falling, which may reflect the process that these economies use the financial environment created by the stabilization fund to stabilize the economy and finally get out of trouble.
In order to ensure the stability of the U.S. financial system and prevent the recurrence of "large but not collapsed" financial institutions, the United States has established an orderly liquidation Fund (OLF). After the 2008 financial crisis, the $1.7 trillion emergency financial assistance is still difficult to maintain financial stability, and more than 250 banks closed down from 2008 to 2010. From 2009 to 2010, the deposit insurance fund (DIF) of the Federal Deposit Insurance Corporation (FDIC) suffered great losses. At the end of 2010, the fund balance and reserve ratio of dif were negative. Therefore, the United States passed the Dodo Frank act in July 2010, which expanded the coverage of orderly liquidation to large financial institutions with systemic importance, and provided an alternative to bankruptcy in Chapter II of this act. Provide for the creation of OLF by the US Treasury Department to provide liquidity support for the funds spent in the liquidation process; FDIC is the receiver of bankruptcy. It can use the funds of OLF only after formulating an orderly liquidation plan approved by the Ministry of finance. The completion cycle of the liquidation procedure is 3-5 years.
FDIC mainly solves the problem of bank failure through P & a agreement. FDIC will sell the franchise rights of failed banks to healthy and well operated institutions to find acquirers who can take over part or all of them. If the potential acquirer submits a bid that meets the FDIC standard, the P & a agreement is reached, otherwise the FDIC will continue to perform the payment. Under normal circumstances, the loss share of loans and real estate borne by FDIC is 80%, and the acquisition bank bears the remaining 20%. Between 2008 and 2013, FDIC used this strategy to sell 304 (62%) failed banks.
After the introduction of the Dodo Frank act, the main ratings tended to be stable and the yield of US bonds fell. One week after the introduction of the bill, the S & P yield reached 2.09%, but it fell after the second week, and the yield was - 1.09% after January. At the same time, after the introduction of the bill, S & P's rating has stabilized and the number of rating downgrades has decreased, which has contributed to the decline of bond yields to a certain extent, and the maturity yield of three-year and ten-year Treasury bonds has decreased by more than 50bp.
Risk tip: the spread of the epidemic exceeded expectations, and the effect of policy hedging against the economic downturn was less than expected.
