Cross-Border Banking in the Euro Area since the Crisis: What is Driving the Great Retrenchment?

Martin Schmitz and Marcel Tirpák

Financial Stability Review, 2017, vol. 2

Abstract: This special feature examines the potential drivers of the post-crisis retrenchment in cross-border banking in the euro area, which stands out in international comparison. Examining a wide range of possible determinants of this phenomenon, it establishes a significant link between deteriorating asset quality and the retrenchment in cross-border banking. Conversely, tighter prudential policies and the introduction of bank levies do not contribute to explaining the reduction in cross-border banking activity. Therefore, tackling the persistent asset quality problems, along with the completion of the banking union, would seem to be pivotal to reaping the potential benefits of cross-border banking within the euro area in terms of risk diversification and risk-sharing. JEL Classification: G00

Keywords: cross-border banking; financial stability; retrenchment (search for similar items in EconPapers)
Date: 2017-11
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