To be or not to be in Banking Union

Harris Dellas and Dimitris Papageorgiou

No 21762, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: Banking Union (BU) membership comes with costs, such as foregoing the ability to tailor domestic banking regulation to the country’s needs and preferences; and benefits, such as a more efficient provision of deposit insurance. We use a general equilibrium model that features a rich financial sector, risk shocks, optimal bank capital regulation and government-provided deposit insurance to evaluate the implications of BU membership for welfare, macroeconomic activity and financial stability. BU participation is favored by a riskier and more consequential —for economic activity — banking sector. Nevertheless, there are cases of welfare improving membership that are not associated with higher and more stable macroeconomic performance and financial stability.

Keywords: Financial; stability; policy (search for similar items in EconPapers)
JEL-codes: E3 E44 G01 G21 O52 (search for similar items in EconPapers)
Date: 2026-07
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