To increase the risk-absorption capacity of the EU banking system, the Liikanen Report suggests that:

Question

Quizplus · Accepted Answer

The Liikanen Report suggests using bail-in-debt by banks as a way to increase the risk-absorption capacity of the EU banking system. This would require bondholders and other creditors to bear the losses of a bank's failure, rather than taxpayers. Option A is not a solution to increasing risk-absorption capacity, as pursuing profitable trading opportunities can increase risk rather than absorb it. Option B is not a solution either, as lowering the capital standards of EU banks would reduce their ability to absorb losses and increase their risk, making the system more vulnerable to failures. Therefore, option C is the best solution presented.

To Increase the Risk-Absorption Capacity of the EU Banking System