Channels of Risk Sharing in the Eurozone: What Can Banking and Capital Market Union Achieve?

Mathias Hoffmann, Egor Maslov (), Bent Sorensen and Iryna Stewen
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Egor Maslov: University of Zurich’s Research Priority Program in Financial Market Regulation (URPP FinReg)

IMF Economic Review, 2019, vol. 67, issue 3, No 3, 443-495

Abstract: Abstract We study channels of risk sharing in the EMU before and after 2008, when the Great Recession started. Empirically, higher cross-border equity holdings and more direct bank-to-nonbank lending are associated with more risk sharing while interbank integration is not. Equity market integration in the EMU remains limited while banking integration is dominated by interbank integration. Further, interbank integration proved to be highly procyclical, which contributed to a freeze in risk sharing after 2008. Based on this evidence, and results from simulations of a stylized DSGE model, we discuss implications for banking union. Our results show that direct banking integration and capital market integration are complements and that robust risk sharing in the EMU requires integration on both fronts.

Keywords: E21; E32; E44; F30; F36; F40; F45 (search for similar items in EconPapers)
Date: 2019
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Citations: View citations in EconPapers (14)

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DOI: 10.1057/s41308-019-00083-3

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