Channels of Risk Sharing in the Eurozone: What Can Banking and Capital Market Union Achieve?

  • Mathias HoffmannEmail author
  • Egor Maslov
  • Bent E. Sørensen
  • Iryna Stewen
Research Article


We study channels of risk sharing in the EMU before and after 2008, when the Great Recession started. Empirically, higher cross-border equity holdings and more direct bank-to-nonbank lending are associated with more risk sharing while interbank integration is not. Equity market integration in the EMU remains limited while banking integration is dominated by interbank integration. Further, interbank integration proved to be highly procyclical, which contributed to a freeze in risk sharing after 2008. Based on this evidence, and results from simulations of a stylized DSGE model, we discuss implications for banking union. Our results show that direct banking integration and capital market integration are complements and that robust risk sharing in the EMU requires integration on both fronts.


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We could like to thank the editors Sebnem Kalemli-Ozcan, Philippe Martin, and Linda Tesar and our discussants Marcel Fratzscher and Rosen Valchev as well as two anonymous referees for many useful suggestions and comments. We are also grateful to conference and seminar participants in Dublin, at the Bank of Finland, the University of Zurich, and the ASSA meetings 2019 for comments.


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Copyright information

© International Monetary Fund 2019

Authors and Affiliations

  • Mathias Hoffmann
    • 1
    • 2
    • 3
    • 4
    Email author
  • Egor Maslov
    • 2
    • 5
    • 6
  • Bent E. Sørensen
    • 7
    • 8
  • Iryna Stewen
    • 2
    • 9
  1. 1.Department of Economics, International Trade and Finance GroupUniversity of ZurichZurichSwitzerland
  2. 2.University of Zurich’s Research Priority Program in Financial Market Regulation (URPP FinReg)ZurichSwitzerland
  3. 3.The CESifo MunichMunichGermany
  4. 4.The Centre for Applied Macroeconomic Analysis (CAMA)The Australian National UniversityCanberraAustralia
  5. 5.Department of Banking and FinanceThe University of ZurichZurichSwitzerland
  6. 6.The Swiss Finance Institute (SFI)ZurichSwitzerland
  7. 7.The Department of EconomicsUniversity of HoustonHoustonUSA
  8. 8.The Centre for Economic Policy Research (CEPR)LondonUK
  9. 9.Gutenberg School of Management and EconomicsJohannes Gutenberg University MainzMainzGermany

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