Advertisement

Trust in the Euro and the EU’s Banking Union After the Financial Crisis

  • Clas Wihlborg
  • Sarkis J. Khoury
Chapter

Abstract

Wihlborg and Khoury examine whether greater institutional flexibility can strengthen confidence in the euro and the European banking union. The authors highlight the costs and benefits of harmonization as compared with those arising from competition among national regulatory frameworks. Greater trust requires either that some EU member states abandon the euro as their currency, or that they effect far-reaching structural reforms. Politically, it is advantageous to divide the euro zone into two different currency areas. Regarding the EU’s banking union, Wihlborg and Khoury contend that market discipline with regard to banks’ risk-taking improves national regulatory frameworks through institutional competition. Mutual recognition between national supervisory authorities requires harmonization of rules for dealing with troubled banks, as well as for banking regulation and supervision.

References

  1. Barro, R. J., & Gordon, D. B. (1983). A positive theory of monetary policy in a natural rate model. Journal of Political Economy, 91(4), 589–610.CrossRefGoogle Scholar
  2. Barth, J. R., Caprio, G., & Levine, R. (2012). Guardians of finance. Cambridge, MA: MIT Press.Google Scholar
  3. Brierley, P. (2016). Presentation at the conference of the National Institute for Economic and Social Research (NIER) on 18 March 2016. Retrieved from www.niesr.ac.uk/financial-regulation-are-we-reaching-efficient-outcome
  4. Cabo-Valverde, S., Benink, H., Berglund, T., & Wihlborg, C. (2015). Regulatory response to the financial crisis in Europe: Recent developments 2010–2013. Journal of Financial Economic Policy, 7(1), 29–50.CrossRefGoogle Scholar
  5. De Grauwe, P., & Mongelli, F. P. (2005). Endogeneities of optimum currency areas: What brings countries sharing a single currency closer together? Working Paper Series, no. 468, European Central Bank. Retrieved from http://www.ecb.europa.eu/pub/pdf/scpwps/ecbwp468.pdf
  6. European Commission. (1990, October). One money, one market: An evaluation of the potential benefits and costs of forming an economic and monetary union. European Economy, vol. 44.Google Scholar
  7. European Commission. (2014). Banking Union: Restoring financial stability in the Eurozone. Memo.14/294, Brussels, 15 April 2014.Google Scholar
  8. European Shadow Financial Regulatory Committee. (2014, November 10). Complexity and credibility in the single resolution mechanism. Statement, no. 39.Google Scholar
  9. European Shadow Financial Regulatory Committee. (2017, January 24). Legacy problems as a threat to the Banking Union. Statement, no. 43.Google Scholar
  10. Frankel, J. A., & Rose, A. K. (1998). The endogeneity of the optimum currency area criteria. The Economic Journal, 108(449), 1009–1025.CrossRefGoogle Scholar
  11. Hertig, G., & McCahery, J. A. (2003). Company and takeover law reforms in Europe: Misguided harmonization efforts or regulatory competition? European Business Organization Law Review (EBOR), 4(2), 179–211.CrossRefGoogle Scholar
  12. International Monetary Fund. (2014). Global financial stability report. Washington, DC: IMF.Google Scholar
  13. Kerber, W. (2000). Interjurisdictional competition within the European Union. Fordham International Law Journal, 23, 217–249.Google Scholar
  14. Kydland, F. E., & Prescott, E. C. (1977). Rules rather than discretion: The inconsistency of optimal plans. Journal of Political Economy, 85(3), 473–491.CrossRefGoogle Scholar
  15. Luciano, E., & Wihlborg, C. (2018). Financial synergies and systemic risk in the organization of bank affiliates. Journal of Banking and Finance, 89, (March).Google Scholar
  16. Nouy, D. (2014). Towards the European Banking Union: achievements and challenges. Speech at the OeNB Conference, Vienna, 12 May 2014.Google Scholar
  17. Prabha, A. P., & Wihlborg, C. (2014). Implicit guarantees, business models and banks’ risk-taking through the crisis: Global and European perspectives. Journal of Economics and Business, 76, 10–38.CrossRefGoogle Scholar
  18. Romano, R. (2006). The states as a laboratory: Legal innovation and state competition for corporate charters. Yale Journal on Regulation, 23(2), 209–247.Google Scholar
  19. Schmidt, R. H., & Spindler, G. (2002). Path dependence, corporate governance and complementarity. International Finance, 5(3), 311–333.CrossRefGoogle Scholar
  20. Sweeney, R. J., Goldberg, L., & Wihlborg, C. (2007). The Nordea experiment: Evidence from market and accounting data. Journal of Banking and Finance, 31(4), 1265–1286.CrossRefGoogle Scholar
  21. Sykes, A. O. (2000). Regulatory competition or regulatory harmonization? A silly question? Journal of International Economic Law, 3(2), 257–264.CrossRefGoogle Scholar
  22. Tower, E., & Willett, T. D. (1976). The theory of optimum currency areas and exchange rate flexibility. Special Papers in International Finance, no. 11. Princeton, NJ: Princeton University.Google Scholar
  23. Trachtman, J. P. (2000). Regulatory competition and regulatory jurisdiction. Journal of International Economic Law, 3(2), 331–348.CrossRefGoogle Scholar
  24. Vaubel, R. (2009). The future of fiscal federalism and the need for global government: A response to Vito Tanzi. European Journal of Political Economy, 25(1), 133–136.CrossRefGoogle Scholar
  25. Wihlborg, C. (2012). Developing distress resolution procedures for financial institutions. SUERF Study, no. 4.Google Scholar
  26. Wihlborg, C. (2017). Bail-ins: Issues of credibility and contagion. SUERF Policy Note, no. 10.Google Scholar
  27. Wihlborg, C., & Willett, T. D. (1991). Optimum currency areas revisited. In M. Fratianni, C. Wihlborg, & T. D. Willett (Eds.), Financial regulation and monetary arrangements after 1992. Amsterdam: Elsevier.Google Scholar
  28. Wihlborg, C., Willett, T. D., & Zhang, N. (2010). The euro debt crisis: It isn’t just fiscal. World Economics, 11(4), 51–77.Google Scholar
  29. Willett, T. D., Permpoon, O., & Wihlborg, C. (2010). Endogenous OCA analysis and the early euro experience. The World Economy, 33(7), 851–872.CrossRefGoogle Scholar
  30. Wyplosz, C. (2006). European Monetary Union: the dark sides of a major success. Economic Policy, 21(46), 208–261.CrossRefGoogle Scholar

Copyright information

© The Author(s) 2019

Authors and Affiliations

  • Clas Wihlborg
    • 1
  • Sarkis J. Khoury
    • 2
  1. 1.Chapman UniversityOrangeUSA
  2. 2.University of California at RiversideRiversideUSA

Personalised recommendations