Should Denmark and Sweden Join the Banking Union?
Forthcoming, Journal of Financial Regulation
10 Pages Posted: 29 Jun 2020
Date Written: June 2, 2020
There is an important policy discussion in Denmark and Sweden on joining the banking union. This article reviews the pros and cons of joining. The main rationale for joining the banking union is cross-border banking in the EU internal market. Reviewing the banking systems, we find that Denmark and Sweden have the same cross-border characteristics as the euro area countries, which suggests that the rationale for joining is similar. Moreover, both countries have large banks which may be too big to save at country level, but not at the bank union level. Nevertheless, there are some governance concerns. While euro area countries have an automatic and full say in all banking union arrangements, the out-countries lack certain formal powers in ultimate decision-making. We find that this may in practice be less of a problem. Finally, the out-countries have the nuclear option to leave the banking union.
Keywords: cross-border banking, Banking Union, non-euro area countries, banking supervision, financial stability
JEL Classification: F36, G21, G28
Suggested Citation: Suggested Citation