And because inflation is reflected in nominal interest rates, that, in turn, can reduce the amount of policy space the central bank has available to prevent the economy from slipping into recession. In fact, in recent years, central banks around the world have had to use a larger variety of policy tools than they have traditionally used to support the recovery.
The establishment of the Single Resolution Mechanism in the EU will facilitate the resolution of cross-border banks. Importantly, the resolution framework gives the power to authorities to promptly implement a “bail-in” of bank debt holders when a bank goes into resolution. Banks will have to have a minimum of 8% of their liabilities eligible to bail-in.