Should Denmark and Sweden Join the Banking Union?

Forthcoming, Journal of Financial Regulation

10 Pages Posted: 29 Jun 2020

See all articles by Svend E. Hougaard Jensen

Svend E. Hougaard Jensen

Copenhagen Business School - Department of Economics

Dirk Schoenmaker

Rotterdam School of Management, Erasmus University; Erasmus Research Institute of Management (ERIM); Centre for Economic Policy Research (CEPR)

Date Written: June 2, 2020

Abstract

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

Hougaard Jensen, Svend Erik and Schoenmaker, Dirk, Should Denmark and Sweden Join the Banking Union? (June 2, 2020). Forthcoming, Journal of Financial Regulation, Available at SSRN: https://ssrn.com/abstract=3617994

Svend Erik Hougaard Jensen

Copenhagen Business School - Department of Economics ( email )

Porcelænshaven 16 A, 1
Frederiksberg C, DK-2000
Denmark
(+45) 3815 3478 (Phone)

Dirk Schoenmaker (Contact Author)

Rotterdam School of Management, Erasmus University ( email )

P.O. Box 1738
Room T08-21
3000 DR Rotterdam
Netherlands

HOME PAGE: http://www.rsm.nl/people/dirk-schoenmaker/

Erasmus Research Institute of Management (ERIM) ( email )

P.O. Box 1738
3000 DR Rotterdam
Netherlands

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

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