Dalvinder Singh’s co-authored paper ‘ECB Significant-Bank Risk Profile and COVID-19 Crisis Containment: What Approach in the Transitioning Phase? IADI Sponsored Paper Series, No. 2, July 2022’ formally contributes to the international conversation on how best to ‘exit’ COVID 19 support measures. The Financial Stability Board published its final report on what kind of exit strategies would ensure equitable outcomes once countries start to remove Covid-19 support measures.

The FSB report explains Singh et al’s proposals for a ‘transition strategy’ in their report. Singh et al’s paper scrutinises the unprecedented degree of public and private intervention to avert a social, economic and financial crisis brought on by the COVID-19 pandemic. EU member states, and especially participating member states of the European Banking Union (EBU), introduced a broad set of measures, including public guarantees, moratoria and amendments to the European Commission State Aid framework, to contain the negative effects of the pandemic on the economy. The EU suspended its fiscal rules and the European Central Bank increased its monetary operations. The paper uses an empirical analysis to review the impact of public support on the Single Supervisory Mechanism (SSM) significant banks and some of the acutely exposed participating EBU member states because of their significant increase in government debt levels.

We argue that the containment of the COVID-19 crisis creates a major uncertainty, namely a possible insolvency lag once the benefits of the public support subside and insolvencies start to materialise. This uncertainty is associated with non-financial corporates, the safety and soundness of the SSM significant banks and sovereign debt sustainability, forming a new ‘doom loop’. We suggest the design of a ‘transition phase’ as a mechanism of accountability to improve the understanding of those uncertainties to ensure financial stability.