During the euro debt crisis, banks’ holdings of domestic sovereign debt amplified the transmission of sovereign stress to bank lending and solvency risk in stressed countries. Yet, current proposals to reform European banking regulation of bank sovereign exposures meet with obstacles, some structural–namely, the scarcity and asymmetric provision of safe assets–and others transitional–chiefly the danger that regulatory change may trigger instability in the sovereign debt market. But both types of obstacles can be overcome by introducing a synthetic security resulting from the securitization of euro-area sovereign debt — European Safe Bonds, or ESBies — and by providing regulatory incentives for banks to replace domestic debt holdings with this security.
Marco Pagano is Professor of Economics at University of Naples Federico II, President of the Einaudi Institute for Economics and Finance (EIEF), Director of the Centre for Studies in Economics and Finance (CSEF), and Research Fellow of the Centre for Economic Policy Research (CEPR), the European Corporate Governance Institute (ECGI), the Center for Financial Studies (CFS) and the European Economic Association (EEA). He holds a B.A. in Economics from Cambridge University and a Ph.D. in Economics from MIT, and taught at Bocconi University, Imperial College and the University of Salerno. In 1997 he received the BACOB European Prize for Economic and Financial Research, jointly with Ailsa Röell. From 2004 to 2011 he was the managing editor of the Review of Finance (the journal of the European Finance Association), together with Josef Zechner. In 2011 he was awarded an ERC Advanced Grant, for a 5-year research project on “Finance and Labor”.
He is Chair of the Advisory Scientific Committee of the European Systemic Risk Board (ESRB). From 2011 to 2013 he was a member of the Group of Economic Advisors to the European Securities and Markets Authority (ESMA). He also advised the Italian Treasury on the reform of security markets (1995-96), and was a member of the Treasury’s privatisation committee (1997-2001) and of the EU Parliament advisory panel on financial services (2002-04).
Most of his research is in the area of finance, especially in market microstructure, banking and corporate finance. His publications have appeared in several journals, such as American Economic Review, Review of Economic Studies, Quarterly Journal of Economics, Journal of Finance, Review of Financial Studies, RAND Journal of Economics, Journal of the European Economic Association, and Economic Journal. In 2013 he published the book Market Liquidity: Theory, Evidence and Policy (with Thierry Foucault and Ailsa Roëll) with Oxford University Press.