Above all, however, the absence of transaction costs required for the validity of Coase’s ”theorem” is a very demanding condition. Put simply, it assumes that it is possible to stipulate a private agreement instantly and at no cost, according to which all the stakeholders (potentially millions or billions of people) voluntarily “buy” (for example) the polluter’s renunciation of the right to pollute. Difficult? Impossible?
This is why central banks act as lender of last resort and fiscal backstops should be in place to ensure trust in the stability of the financial sector. In the Banking Union, both supervisory responsibility and the fiscal backstop need to be at European level, to underpin durably confidence in the area-wide financial system.