Shocks and risk sharing in the EMU: Lessons for Banking and Capital Market Union
A short policy piece by Mathias Hoffmann and his co-authors Bent Sorensen, Egor Maslov and Iryna Stewen on how to ensure that risk sharing in EMU becomes resilient to systemic banking shocks has just appeared in a new CEPR e-book edited by my colleagues Jan-Egbert Sturm and Nauro Campos entitled
Bretton Woods, Brussels, and Beyond: Redesigning the Institutions of Europe
In this piece we build on some of our earlier and on ongoing current research to compare the state of banking integration in the EMU today to that in the U.S. prior to state-level banking deregulation in the 1980s. As in the U.S. then, EMU today is essentially an integrated interbank market. But— as was the case among states in the U.S. prior to 1980— there is little direct cross-border lending of banks to firms or cross-border branching in the EMU. This makes macroeconomic risk sharing susceptible to systemic crisis as well as to country-specific banking sector shocks. We conclude that a proper banking union will have to encourage the cross-border consolidation and branching of banks and that this has to be complemented by a proper capital market union that encourages the cross-border ownership of equity. Just focusing on one of the two unions —as is currently advocated by some policymakers—will not be enough. The book was launched ahead of the June 25th EU summit with some presentations by the authors across Europe, including two by Mathias Hoffmann at the Bank of Finland on June 19th and at ETH Zürich on June 22nd.
Mathias Hoffmann is Professor at the Department of Economics at the University of Zurich. His research focuses on the macroeconomic aspects of international financial integration and on the link between financial markets and the macro-economy more generally. His recent published articles include papers on the determinants of international capital flows and imbalances, the international transmission of business cycles, on international risk sharing, banking regulation, and housing markets. Prior to arriving in Zurich, he was Professor at the University of Dortmund in Germany and a Lecturer at Southampton University (UK). He holds a PhD in Economics from the European University Institute in Florence and obtained his undergraduate education in economics and mathematics at WHU School of Management, Brandeis University and the University of Bonn.
Mathias Hoffmann is affiliated with the University of Zurich’s research priority program in financial regulation (URPPP FinREG), a fellow of CESifo Munich and of the Centre for Applied Macroeconomic Analysis (CAMA) at the Australian National University, and has held visiting positions at the University of California at Berkeley, the Deutsche Bundesbank, the Bank of Finland, the Hong Kong Monetary Authority, the Bank for International Settlements, Norges Bank, Keio University and Stanford University.