Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/89233
Authors: 
Zoican, Marius A.
Górnicka, Lucyna A.
Year of Publication: 
2013
Series/Report no.: 
Tinbergen Institute Discussion Paper 13-184/VI
Abstract: 
This paper studies the optimality of a banking union in a setting with cross-country liquidity spillovers and moral hazard. Generally, the banking union improves welfare by efficiently providing liquidity to banks, thus limiting spillovers from bank defaults across the member countries. At the same time, however, the banking union will resort to bank bailouts more often, distorting risk incentives of banks. For low bank liquidation costs, the net welfare effect of a banking union can be thus negative. For welfare enhancing banking unions, countries with net creditor banking systems always pay most of the joint bailout costs. In equilibrium, all countries are less willing to join a banking union which induces moral hazard.
Subjects: 
banking
financial intermediation
risk shifting
banking union
JEL: 
G15
G18
G21
G33
Document Type: 
Working Paper

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