ABSTRACT
This chapter examines three episodes of financial fragility in the context of the European crisis. The first episode deals with the turmoil in the prices of government bonds and the birth of a new market for Western European credit default swaps for the same bonds. The second deals with the second bail-out of the bank Dexia that contains some paradigmatic elements of the behaviour of big core countries' banks in 2010–2011. The third focuses on an episode of extraordinary regulatory policy implemented by a new institution, the European Banking Authority, in November 2011 that acted as a transmission chain of the crisis from core to peripheral countries' banks. H. P. Minsky stressed that a major force behind the evolution of the financial system is financial innovation. The notional amounts of derivatives, after having registered a slight fall after the 2007 financial crisis, are rising again worldwide.
