Currency Union with and without Banking Union

Vincent Bignon, Régis Breton () and Mariana Rojas Breu ()
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Mariana Rojas Breu: LEDa - Laboratoire d'Economie de Dauphine - Université Paris Dauphine-PSL - PSL - Université Paris Sciences et Lettres
Authors registered in the RePEc Author Service: Mariana Rojas-Breu

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Abstract: This paper analyzes a two-country model of currency, banks and endogenous default to study whether impediments to credit market integration across jurisdictions impact the desirability of a currency union. We show that when those impediments induce a higher cost for banks to manage cross-border credit compared to domestic credit, welfare may not be maximal under a regime of currency union. But a banking union that would suppress hurdles to banking integration restores the optimality of that currency arrangement. The empirical and policy implications in terms of banking union are discussed.

Keywords: banks; currency union; default; limited commitment; banques; défaut; engagement limité; union monétaire; crédit (search for similar items in EconPapers)
Date: 2018-01-16
New Economics Papers: this item is included in nep-ban
Note: View the original document on HAL open archive server: https://hal.science/hal-01685893v1
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Citations: View citations in EconPapers (2)

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Working Paper: Currency Union with and without Banking Union (2013)
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