"Crucially, individual member states' debt would lose the (empirically false, but so far regulatorily established) risk-free status, which only the senior ESBies tranche would receive.",
is it worth adding a sentence stating the implication that national bonds would no longer be given a 0% risk weighting on bank balance sheets (only the senior trance of the ESBies would). This is what would prevent governments from having their banks buy their own sovereign bonds - as is currently done, right?
2) Tranches always remind me of the MBSs in the financial crises, but I can see the rationale of the approach here.
3) Seems like the right solution, but - like with rent control - since all European sovereign debt spreads are compressed, I don't see - politically - how any government with a compressed spread would agree to this kind of a change.
1) For readers like me, when you say:
"Crucially, individual member states' debt would lose the (empirically false, but so far regulatorily established) risk-free status, which only the senior ESBies tranche would receive.",
is it worth adding a sentence stating the implication that national bonds would no longer be given a 0% risk weighting on bank balance sheets (only the senior trance of the ESBies would). This is what would prevent governments from having their banks buy their own sovereign bonds - as is currently done, right?
2) Tranches always remind me of the MBSs in the financial crises, but I can see the rationale of the approach here.
3) Seems like the right solution, but - like with rent control - since all European sovereign debt spreads are compressed, I don't see - politically - how any government with a compressed spread would agree to this kind of a change.
The Blanchard-Ubide proposal reminds me of my proposal from last year to issue consumption-linked perpetuities:
https://gideonmagnus.medium.com/the-case-for-consumption-linked-perpetuities-in-the-eurozone-557779ece710
But I doubt they got the idea from me...