https://doi.org/10.52903/wp2026373
TO BE OR NOT TO BE IN BANKING UNION
Harris Dellas
University of Surrey, Karl Brunner Institute, Federal Reserve Bank of St. Louis, CEPR
Dimitris Papageorgiou
Bank of Greece
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, bank capital regulation and government-provided deposit insurance to evaluate the implications of BU membership for welfare, macroeconomic activity and financial stability. A riskier and more consequential –for economic activity– banking sector favors BU membership. However, gains in macroeconomic performance and financial stability alone are not sufficient to make Banking Union membership welfare improving.
Keywords: Banking Union, costs, benefits, banking regulation, deposit insurance, welfare, macroeconomic activity, financial stability.
JEL-classifications: E3, E44, G01, G21, O52.
Disclaimer: We would like to thank Hiona Balfoussia, Casper de Vries, Dimitri Vayanos, Mike Wickens for valuable comments. The views expressed in this paper are those of the authors and not necessarily those of the Bank of Greece, or the Eurosystem.
Correspondence:
Harris Dellas
University of Surrey, Karl Brunner Institute,
Federal Reserve Bank of St. Louis, CEPR
email: harris.dellas@gmail.com