Financial Intermediation Function Research Articles

Modeling Bank Financial Intermediation Functions: Theoretical and Empirical Evidence from Nigeria

This research examined the modeling of the financial intermediation functions of banks in Nigeria. The effectiveness of financial intermediation was determined by its impact on economic growth in Nigeria. Secondary time series data were collected to determine the association between variables. The study adopted an ex post facto research design and used ordinary least squares regression tests that reveal the predictive power of the model as well as the relative statistics of the short-term variables, while testing for the existence of a long-term equilibrium relationship, based on the multivariate cointegration technique performed. The results of the study suggest that there are both short-term and long-term relationships between financial intermediation and economic growth in Nigeria. Specifically, CBCPS has a positive relationship with GDP, while MS and MLR have a positive and significant relationship with GDP in the long run. The study recommends, inter alia, that monetary authorities, in particular the Central Bank of Nigeria, has to use measures to force banks to reduce their interest rates on loans. This will increase investment and enhance the overall performance of the economy's productive sectors.

Corporate Governance Practices and Performance of Deposit Taking Sacco's in Nairobi City County Kenya

Good performance of SACCOs is a key ingredient for its continuous existence and sustainability. The financial intermediation function carried out by SACCOs is dependent on how well they perform. Over the years, there have been various concerns by policy makers and academician over the SACCOs' dismal performance in Kenya. Despite the various corporate governance initiatives and measures implemented by important organizations such as the Centre for Company Governance, the issue of firm corporate governance remains unresolved, despite the involvement of the Capital Markets Authority and SASRA. The aim of this research is to determine how the performance of deposit taking SACCOs in Nairobi is influenced by corporate governance. The research focused on how stakeholder involvement, board composition, organizational structure, and control environment affect Nairobi-based deposit-taking SACCOs’ performance. The study's base was stakeholder, agency, stewardship, and resource dependence theory. The study employed a descriptive design. A census approach was used whereby all the deposit taking SACCOs in Nairobi were included in the study. The target population was 47 CEOs, 47 Sacco officers, 47 heads of finance and 47 heads of credit department. Data was gathered using structured questionnaire. In this research, to evaluate the construct and content validity, the researcher did a pilot test. Both descriptive and multiple regression analysis were used to examine the data. The findings showed that corporate governance factors (board composition, organization structure, control environment and stakeholder involvement) had a correlation coefficient (R) of 0.691 with an R squared of 0.477. From the ANOVA table corporate governance had a significant effect on performance of DT Saccos (F=28.513; p= 0.000). From the regression, corporate governance (board composition, organization structure, control environment and stakeholder involvement) had a positive effect on performance of DT Saccos. This study concludes that corporate governance (board composition, organization structure, control environment and stakeholder involvement) has a positive effect on performance of DT Saccos in Nairobi, Kenya. The study recommends that management of DT Saccos improve their corporate governance for increased performance levels. There is need for similar research based on other factors influencing performance, other measures of the variables, other Saccos & institutions as well as adopting secondary data.

Conceptual Approaches to the Formation of a Stable World Monetary and Financial System

The inclusion of the most dynamically developing countries in global value chains marked a gradual shift in the center of economic gravity in the world economy from the West to the East. In an effort to maintain their leading positions in the global monetary and financial system, today Western countries, led by the United States, create artificial barriers for developing countries to access the global financial architecture, which contradicts the logic and laws of the free market and increases geopolitical tensions. The purpose of the paper is to reveal and systematize the main factors contributing to the dysfunctionality of the modern world monetary and financial system and develop conceptual approaches to increasing its stability, taking into account the capabilities and interests of the most dynamically developing countries. The following methods were used to achieve the paper’s goal: scientific abstraction (to generalize the crisis-generating factors of the modern world monetary and financial system); structural and functional analysis (to justify the need to form a “non-dollar” interregional (transcontinental) monetary and financial space and the possibility of the BRICS countries creating their own payment and settlement infrastructure and international liquidity); deduction and comparison (to identify problems that hinder China’s promotion to the role of the leader of the new world economic order and disclosure of contradictions in the monetary and financial regionalization of the single European market). A comprehensive approach has been developed to form and ensure the functionality of the interregional (transcontinental) monetary and financial space of the BRICS countries, including measures aimed at countering the institutional monopolization of the functions of global financial intermediation by defining their own norms, rules and standards for the functioning and regulation of interregional financial markets by the BRICS countries. From a practical point of view, this approach can be used by the government bodies of the Russian Federation and the Bank of Russia to develop a new strategy and tactics for the country’s international monetary and financial cooperation in the face of tougher external sanctions, as well as to develop appropriate measures aimed at ensuring Russia’s financial and economic sovereignty.

The Role of Banking in Micro, Small and Medium Enterprises (Study of BPRS Saruma Financing in the Agriculture and Fisheries Sector)

Micro, Small and Medium Enterprises (MSMEs) as pillars supporting the Indonesian economy need special attention, including banking financial institutions, because the contribution of the MSME sector to the national economy is quite large. Sharia People's Financing Bank (BPRS) Saruma Sejahtera Halmahera South Regency has carried out all the systems that have been established in accordance with the mandate of law number 21 of 2008 concerning Islamic banking, namely providing financing based on contracts that do not conflict with sharia principles, namely profit sharing that does not harm the party customers include Micro, Small and Medium Enterprises (MSMEs) so that they can run their businesses. BPRS Saruma Sejahtera Halmahera Selatan with a Financial intermediation function can encourage economic activity, because it can lead to a flow of funds from parties who are not productive to those who are productive in managing funds. Furthermore, this will help the economy to become more efficient and dynamic. This research is a qualitative research, it is hoped that it will be able to find out how far the alignment of Islamic banking is in the real sector, namely Micro, Small and Medium Enterprises (MSMEs). The results of this journal research are to find out the basic procedures for analyzing financing or credit from the Saruma Sejahtera Halmahera Selatan Syariah People's Financing Bank to MSME actors, both businesses in the agricultural and fisheries sectors.

Analysis of the Effect of Capital Adequacy Ratio (Car), Non-Performing Loan (Npl), and Operating Cost Operating Income (Bopo), Net Interest Margin (Nim) to Loan to Deposit Ratio (Ldr) of State-Owned Banks in Indonesia

A bank is an institution with a financial intermediation function that has the authority to raise public funds and also distribute money in the form of loans and other financial services. The purpose of this study is to analyze the effect of Capital Adequacy Ratio (CAR) on Loan to Deposit Ratio (LDR) at State-Owned Banks in Indonesia, 2015 – 2019 and to analyze the effect of Non-Performing Loans (NPL) on Loan to Deposit Ratio (LDR) at State-Owned Banks in Indonesia, 2015 – 2019. This study is a quantitative study. This study uses a hypothesis testing design which is a design aimed at testing the influence between variables where in this case the variables tested are factors that affect bank financial performance. Capital Adequacy Ratio (CAR) has a positive but not significant influence on the Loan to Deposit Ratio (LFR) at state-owned banks in Indonesia in the 2015-2019 period. Non-Performing Loans (NPL) have a negative and significant influence on the Loan to Deposit Ratio (LFR) at state-owned banks in Indonesia in the 2015-2019 period. Operating Costs to Operating Income (BOPO) have a positive and significant influence on the Loan to Deposit Ratio (LFR) of state-owned banks in Indonesia in the 2015-2019 period.

A bibliometric review of liquidity creation

Liquidity creation is a core function of financial intermediation and an important factor for economic growth. Using performance and bibliometric analysis, we trace the knowledge structure of the academic research on liquidity creation conducted over 45 years. Bibliographic material from the Scopus database is used to perform co-citation, co-word, and bibliographic coupling analyses of influential aspects of the literature, such as authors, articles, journals, countries, institutions, and topics. Through content analysis, we identify three prevalent areas of research in this field of study.

Управління власною ресурсною базою АТ АКБ «ЛЬВІВ»

Abstract. Introduction. The normal development of market relations requires an effectively functioning banking sector, through which the links between all participants and components of the economic mechanism of the state economy can be realized. The key prerequisite for the stable operation of the banking system and ensuring its implementation of the function of financial intermediation is the effective formation of the resource base of banks. Because commercial banks are the centers of the financial system, which concentrate the financial resources of depositors and open access to sources of borrowed resources to borrowers, thereby contributing to the development of the real sector of the economy. For the effective functioning of the bank requires constant analysis of its resource base. Therefore, this article is devoted to the study of the essence of the concept of «bank equity"» from the point of view of the system approach and the analysis of management of own capital of banking institution on the basis of the reporting of JSCB Lviv during 2017-2020. Purpose. The purpose of the article is to highlight the features of managing the bank's own resource base and study of issues of formation of bank resources, their use, assessment of the system of formation and management of bank resources and development of recommendations on ways to improve the effective functioning of this system. Results. The article considers and defines the essence of the concept of bank equity in accordance with the Law of Ukraine. The functions of bank capital are given and characterized. The efficiency of managing the banking institution's own resource base on the example of JSCB «Lviv» is analyzed. The current state of equity development of JSCB «Lviv» in Ukraine is considered and studied. A dynamic and structural analysis of the main indicators that characterize the own potential of the banking institution. The key standards that relate to the bank's own resources base are presented. The level of compliance of the JSCB Lviv with the economic standards set by the National Bank of Ukraine, namely the dynamics of regulatory capital and the regulatory capital adequacy ratio of JSCB Lviv for 2018-2021, is analyzed. »During 2019-2020. The importance of such an indicator as a capital multiplier is considered. The problems of formation and use of the bank's own resources are identified and measures to improve the management of the bank's resource base are proposed. Conclusions. This study will understand what factors affect the ability of banking institutions to effectively conduct banking operations and provide services, as well as the financial stability of the banking system, its place and role in economic transformation and further development of the economy on a market basis, the movement of Ukraine's banking system. society. Dynamic and structural analysis of the main indicators that characterize the bank's own potential will allow to establish the financial stability, reliability and capital adequacy of the bank.

RISKS OF THE BANKING SYSTEM OF UKRAINE IN THE CONDITIONS OF MARTIAL LAW

Introduction. The peculiarities of the manifestations of credit, market and currency risks, liquidity risks and risks of "state failure" for the functioning of the banking system of Ukraine in the conditions of martial law were examined the article. Recommendations are offered for minimizing existing risks and restoring the functionality of the banking system in the context of performing financial intermediation functions. Methods. Traditional methods of scientific knowledge were used in the article. In particular, methods of analysis and synthesis, as well as a graphic method for visualization and comparison of trends of certain indicators, were used to study the main trends of the risks of banking activity under martial law. Methods of generalization and abstraction were used to formulate recommendations for minimizing banking risks during martial law. Results. In the course of the study, it was proved that the credit risk in the conditions of martial law is minimal for the banking system of Ukraine, because as a result of ineffective monetary policy, the credit burden on the national economy is minimal and insufficient for its recovery. The negative impact of currency and market risks on the functioning of the banking system of Ukraine is substantiated. It is proved that due to the use of the monetary regime of inflation targeting, the banking system of Ukraine has lost the ability to implement the investment function and the functions of financial intermediation in general. Disscussion. As a result of the state of war and the negative expectations of economic agents, the short-term deposit base of banks will increase, and the volume of deposits will decrease, which may lead to a liquidity crisis in the banking system, however, the uninterrupted functioning of the banking system of Ukraine in terms of settlement and cash services will be preserved due to the high level of concentration of capital and banking assets owned by the state. In order to minimize the negative impact of banking risks, the NBU should resort to the use of mechanisms for targeted cheap long-term refinancing of banks under specific economic development programs, which will allow restoring the intermediary functions of the banking system. Keywords: credit risk, currency risk, liquidity risk, market risk, “state failure” risk, refinancing, lending, monetary policy.

Bank Efficiency and Oil Price Volatility: A View from the GCC Countries

The study investigates the banks' efficiency in the Gulf Cooperation Council (GCC) countries' members (GCC). The efficiency of the banking sector is a cornerstone in the financial development of a country. It has also become a prominent label in both economic and financial lexicons due to the lucid importance of the financial intermediation function it provides. The banking industry is considered the backbone of the financial system in oil exporting countries of the GCC region. In general, the advancement and stability of the banking sector are inextricably related to the total economic output as measured by the GDP and to the stability of the financial system in particular. This study aims to evaluate how efficient banking is in the six countries of the GCC bloc, and to assess the effect of the oil price shock in 2014 on the bank’s efficiency in these countries. This study employs the 2-stage Data Envelopment Analysis (DEA) methodology for this aim. This model assigns efficiency scores for GCC banks over a period of time from 2008 to 2016 in the first stage. The second stage of the model regresses the aforementioned efficiency scores against a variety of financial and macroeconomic variables to depict the main determinants of bank efficiency and to assess the banking sector's resilience to global shocks as well as to macroeconomic conditions. The empirical outcomes of this study indicate that the global financial crisis (GFC) in 2008 and the oil price shock in 2014 had a significant negative impact on the efficiency scores of the GCC banks. The findings also show that domestic macroeconomic indicators have a greater impact on bank efficiency than institutional or bank-specific variables.JEL Classifications: E6, E44, Q4, G21 Doi: 10.28991/ESJ-2022-06-03-07 Full Text: PDF

FINANCIAL PERFORMANCE OF ISLAMIC BANKING IN NIGERIA: A CAMEL ANALYSIS OF JAIZ BANK PLC

Islamic banking started on a full-scale in Nigeria with the establishment of Jaiz bank which received its approval-in-principle from the Central Bank of Nigeria in 2011. As a non-interest bank, the bank has over the years, managed to compete with well-established conventional banks in the country in the area of financial intermediation. The question however is how the bank has been faring since its establishment in terms of financial performance. This study, therefore, assessed the performance of Jaiz Bank, for nine years from 2012 to 2020. Data were collected from Annual Reports of the Bank and financial ratio analysis was conducted within the framework of CAMEL. The study found that the bank performed averagely well in terms of capital adequacy, asset quality, earnings quality and liquidity during the period under consideration though with some managerial inefficiency. The conclusion was that the bank is in a good position to withstand an unexpected financial crisis. It was therefore recommended that the bank management should be more efficient in its financial intermediation function as this will solidify its position in the face of future uncertainties.

Banking sector credit, inflation and growth in sub-Saharan African countries

The banking sector in the past decade has been known to play a germane role in the development of any economy through its financial intermediation function. However, the financial intermediation of banks which is a major prerequisite for growth can be hindered by inflation. This study examines the effect of banking sector credit on inflation and growth in thirty-five sub-Saharan African economies for the periods 2000 and 2016. The panel vector error correction model (PVECM) technique was employed in analyzing the data. The study outcome indicates that banking sector credit affects inflation positively and growth negatively in SSA economies. Besides, the study found a bi-directional causality between banking sector credits and inflation. Hence, the government in sub-Saharan Africa countries should continue to design and implement an appropriate monetary policy to ensure optimal bank credit that will enhance growth in the region while keeping inflation level under control. The study also recommends the need for financial sector policy reform that will promote fiscal discipline, deepen the financial market, enhance credit availability, and keep inflation under control.

Modelling the financial intermediation function of banks and economic growth in sub-Saharan Africa

PurposeThe purpose of this study is to investigate the effect of financial intermediation functions of banks on economic growth in sub-Saharan Africa.Design/methodology/approachThe study employs data from 11 sub-Saharan African countries over the period 1970–2016. Using broad money supply, bank credit to the private sector and bank deposits as financial intermediation measures, the authors apply the random effects (RE) technique based on the recommendation of the Breusch–Pagan test.FindingsThe results show that except for bank deposits, broad money supply and bank credit to the private sector significantly influence economic growth. While broad money has a negative relationship with growth, bank credit to the private sector and bank deposits are positively correlated with economic growth.Originality/valueThe relationship between financial intermediation and economic growth remains unsettled, as results vary across countries. Besides, in developing countries' perspective, extant studies are largely focused on individual countries to investigate the financial intermediation-growth nexus. In this study, the authors take a different direction by employing a panel approach and thus adding to the few cross-country studies on the subject matter. Also, unlike other studies that have focused on a single indicator of financial intermediation, this study uses three indicators of financial intermediation which broadly reflect the intermediation functions of banks.

The Impact of Fintechs on Financial Intermediation: A Functional Approach

We analyze fintechs and their impact on the traditional financial system from a functional perspective. Following the approach suggested by Merton (1995) [A Functional Perspective of Financial Intermediation, Financial Management 24(2), 23–41], we show how the six core functions of financial intermediation are affected by the technological developments. This analysis provides a new perspective on the future of financial services and their regulation.

Islamic banking’s contribution to the Malaysian real economy

PurposeMalaysia is one of the fastest-growing Asian economies with a properly designed and developed Islamic financial system. This unique feature of the Malaysian economy made it an important case study, and the purpose of this study is to assess for the dynamic contribution of Islamic finance to the growth of the real economy.Design/methodology/approachThe study uses a quarterly data set of 20 years analysed via the autoregressive distributive lag bounds test approach to cointegration.FindingsThe results in the short-run show a non-significant relationship between Islamic banking indices and the real economy. However, in the long-run, financing and deposits of Islamic banks are favourable and contribute significantly to the growth of the Malaysian economy. There was an accumulation of meaningful and wide-ranging investment over the period of the study and productivity of capital was also extra-efficient. The direction of causality is found to be bidirectional between Islamic banking deposits and Malaysian gross domestic product (GDP), but there is a weak causal effect from Islamic banking financing to GDP.Research limitations/implicationsMalaysia has a dual financial system (conventional and Islamic) and both can affect its real economy. This research is limited to Islamic banking’s effects on Malaysian economic growth. The research also limits the scope and coverage for 20 years, from 1998 to 2017 to cover the years for which data is available for all the variables used in the study.Practical implicationsThe results confirm that the Islamic banking sector in Malaysia is performing well in carrying out its major function of financial intermediation, which is the pooling and channelling of funds to productive investment activities. Consequently, the fact that Malaysia excels in Islamic finance is not a fluke. It is because of the effective performance of Islamic financial institutions in the country. Furthermore, Malaysian authorities are doing their level best in promoting Islamic financial activities.Originality/valueThe study fulfills the need to uncover the relationship between the Islamic financial system and the real economy in Malaysia. It differs from other studies as it uses the most recent available data, introduces new variables and identifies the channel by which Islamic banking development transmits growth.

РEER-TO-PEER-КРЕДИТОВАНИЕ КАК АЛЬТЕРНАТИВА БАНКОВСКОМУ КРЕДИТОВАНИЮ

The article considers the mechanism of P2P-lending as lending by individuals to other individuals, through specially created online platforms, in which the lender and borrower are directly connected, without the participation of traditional financial intermediaries. The essence, peculiarities and distinctive characteristics of P2P lending in comparison with a traditional bank loan are defined, such as: banks performing the functions of financial intermediation, asset transformation, liquidity and payment operations, and the absence of an intermediary in R2R lending; monitoring and processing of data by banks, assessment of credit quality; diversification and hedging of credit risks by banks. Dynamics of development of world and domestic markets of P2P-lending has been investigated. The main indicators and conditions of P2P lending were analyzed by the largest Russian companies: Fingooroo, City of Money, Вдолг.ру, Loanberry, Bezbank (minimum and maximum amount of investments, average loan amount, average loan rate, minimum and maximum loan rate). It was determined that a feature of P2P lending is its attractiveness for unscrupulous borrowers, in addition, the current Russian P2P lending is characterized by a lack of regulation and supervision, which increases the risks of potential investors. The study highlighted the main advantages and disadvantages of P2P lending for lenders and borrowers. It is noted that the lack of traditional intermediary functions of a financial intermediary in online sites is primarily due to the need to find a balance between certain costs and the advantages of P2P sites over traditional banks. It is formulated that the risks of online sites compared to banks are associated with the safety of investments, the lack of guarantees of a refund, and the advantages are greater freedom and accessibility for the participants in the transaction

Is Lack of Morality an Explanation for the Economic and Financial Crisis? A Catholic Point of View

Before 2008, several studies provided empirical evidence of a positive correlation between the functions of financial intermediation and economic growth. In 2008, the financial crisis shook trust in this correlation. Several studies found that comprehensive and fundamental changes were needed in the entire financial market. Attention focused on the role of morality as an essential and integral element of the economy, arguing that without a moral attitude at the individual and institutional levels, the whole system necessarily runs into crisis. Among the moral interpretations of the economy, which are concurrently based on philosophical tradition and religious doctrine, the Catholic Church has presented some of the most consistent and unified teachings related to such questions over time, but the effect on economic thinking is less than what relevance and other merits justify. Catholic social teaching suggests morality and the economy are inseparable and highlights the moral interpretation of economic discrepancies. By analyzing theoretical and empirical evidence, this paper assesses the economic validity and legitimacy of Catholic thought about the immanent role of ethics in the economy and the financial crisis.

PENGARUH DANA PIHAK KETIGA, CAR, DAN NPL TERHADAP PENYALURAN KREDIT PT BTN TBK. CABANG MAKASSAR

PT Bank Tabungan Negara as a financial institution that has a financial intermediation function. One function of financial intermediation is to channel credit to the community. Various problems related to banks related to distribution loans. This factor causes the author to do research on what factors are very important in channeling the amount of credit. Facing a large potential risk due to non-performing loans, banks are required to have good credit planning and distribution strategies This study studies what factors are driving the distribution of the amount of credit to the State Savings Bank PT. The data used in this study are primary and secondary data. Primary data obtained by interviews and direct observations on the related credit division. While secondary data is obtained from literature studies and data obtained from the company contains annual reports. Analysis using multiple linear regression by processing data using SPSS. 16. From this study, deposits were positively correlated with the distribution of credit amounting to 89.8%, CAR correlated positively with the distribution of credit amounting to 84.9%, and NPLs negatively correlated with the distribution of credit amounting to -9.6%. From the results of the tests conducted on this study indicate that the independent variables namely DPK, CAR and NPL significantly influence the Distribution of Credit with a significant level of 89.8%.

Liban : illusion financière, illusion monétaire

Afin de comprendre les raisons de la tension économique et financière au Liban et d'en explorer les issues possibles, il est nécessaire d'envisager les fonctions de l'intermédiation financière au Liban à la fois sous l'angle théorique, car elles présentent un cas extrême d'imbrication des risques bancaires, fiscaux et monétaires, et sous l'angle politique, car l'alternative entre leur reconfiguration et leur préservation s'impose comme un enjeu décisif. Au Liban, le système financier est intrinsèquement imbriqué au système politique, dont il est l'un des instruments essentiels. Sa « résilience » est le résultat d'une action politique longue qui tire avantage du défaut d'immunité de la société. Aujourd'hui, le Liban fait face à une crise majeure de la balance des paiements et vouloir occulter les pertes dans l'attente d'un miracle improbable ne fera que les aggraver et épuisera les derniers avoirs extérieurs. Il est donc nécessaire de procéder à une allocation des pertes et des risques qui soit à la fois socialement juste, et par suite politiquement justifiable, et économiquement orientée vers la restructuration de l'économie pour qu'elle ne soit plus structurellement dépendante des flux externes de capitaux. Classification JEL : F41, G21, O16, O53.

An integrated multi-criteria decision making model with Self-Organizing Maps for the assessment of the performance of publicly traded banks in Borsa Istanbul

The major role of banks is to play financial intermediation function between funding needs and funding surpluses. Any problem in the banking system directly influences not only the stakeholders but also the general economy. There have been many attempts to measure the performance of banks by using Multi-Criteria Decision Making Tools (MCDM). This study aims to assess the performance of the publicly traded banks in Borsa Istanbul operating in the Turkish banking sector for the four quarter of 2018. Contribution of this study can be summarized as follow. Dataset is consisted of three dimensions: (i) financial ratios, (ii) branch and personnel network, (iii) daily stock market returns and standard deviation of daily returns. Using a multi-dimensional dataset compiled from three different data sources enabled an objective assessment of bank performance. Features are selected from the financial ratio dataset by using Self-Organizing Maps technique. Instead of using single weight set, a million weight combinations are calculated to monitor the score distributions of MCDM tools. EDAS, MOORA, OCRA and TOPSIS techniques are selected due to their similarity in calculation steps. It is found that OCRA technique produced consistent rankings for different periods. Highest correlation coefficients observed between OCRA and TOPSIS techniques.

Exploring Governance Issues between the SRB and the ESM in the Use of the Common Backstop

To date, the resolution of the Banco Popular Espanol, being the first and only resolution case in the euro area, has had the “benefit” of bringing to light several shortfalls of this crisis management system. Back then, thanks to the sale of business, the need of the use of the Single Resolution Fund (SRF) has been avoided, prompting criticism on whether the fund had sufficient means to overcome a major widespread crisis. During the period elapsed from the last financial crisis, the euro area banking sector has built capital and liquidity buffers, which were aimed at protecting them for future shocks. Although it is now widely accepted that crises are of a cyclical nature, new risks and the high interconnectivity of today’s economic activities brought an unexpected crisis due to the current pandemic. The consequences of this unprecedented event in modern history had severe effects to the worldwide economy, mostly for the boundless block of labour activities, which caused severe losses for households, enterprises and governments that consequently affected the financial intermediation function of the banks. Concerning the European Stability Mechanism (ESM), the current pandemic has had the effect to put temporary on hold the discussion on the revision of the ESM Treaty, including its role as a Backstop to the SRF, so that the Mechanism could experience a new role through the ESM Pandemic Crisis Support. In such a framework, this paper aims to bring back the attention to the unfinished path in the establishment of the Common Backstop by addressing an important element of risk, namely its decision-making process. The main aim is to explore possible governance issues, which could hamper a timely and effective use of the Common Backstop, in the case that the SRF would be depleted and no alternative funding sources would be available.