Are Banking and Capital Markets Union Complements? Evidence from Channels of Risk Sharing in the Eurozone

56 Pages Posted: 22 Oct 2018 Last revised: 29 Jun 2020

See all articles by Mathias Hoffmann

Mathias Hoffmann

University of Zurich

Egor Maslov

Swiss Finance Institute; University of Zurich

Bent E. Sørensen

University of Houston - Department of Economics; Centre for Economic Policy Research (CEPR)

Iryna Stewen

Johannes Gutenberg University Mainz - Gutenberg School of Economics and Management

Date Written: October 2018

Abstract

The interplay of equity market and banking integration is of first-order importance for risk sharing in the EMU. While EMU created an integrated interbank market, "direct'' banking integration (in terms of direct cross-border bank-to-real sector flows or cross-border banking-consolidation) and equity market integration remained limited. We find that direct banking integration is associated with more risk sharing, while interbank integration is not. Further, interbank integration proved to be highly procyclical, which contributed to the freeze in risk sharing after 2008. Based on this evidence, and a stylized DSGE model, we discuss implications for banking union. Our results show that real banking integration and capital market union are complements and robust risk sharing in the EMU requires both.

Keywords: Banking Union, Capital Union

JEL Classification: F15, F36, F45

Suggested Citation

Hoffmann, Mathias and Maslov, Egor and Sorensen, Bent E. and Stewen, Iryna, Are Banking and Capital Markets Union Complements? Evidence from Channels of Risk Sharing in the Eurozone (October 2018). CEPR Discussion Paper No. DP13254, Available at SSRN: https://ssrn.com/abstract=3270931

Mathias Hoffmann (Contact Author)

University of Zurich ( email )

Rämistrasse 71
Zürich, CH-8006
Switzerland

Egor Maslov

Swiss Finance Institute ( email )

c/o University of Geneva
40, Bd du Pont-d'Arve
CH-1211 Geneva 4
Switzerland

University of Zurich ( email )

Rämistrasse 71
Zürich, CH-8006
Switzerland

Bent E. Sorensen

University of Houston - Department of Economics ( email )

204 McElhinney Hall
Houston, TX 77204-5882
United States
713-743-3841 (Phone)
713-743-3798 (Fax)

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

Iryna Stewen

Johannes Gutenberg University Mainz - Gutenberg School of Economics and Management ( email )

Mainz
Germany

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