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Banking Union In Europe: How Much Centralisation Is Needed?

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  • Wolfram Berger
  • Yoko Nagase

Abstract

We examine the efficiency of banking regulation in a federation with two tiers of government and highly integrated banking systems. We assume that policy makers have incomplete information about banks’ true health, and banking sector turmoil can generate cross†border spill†over effects. We show that, in such an environment, the decentralisation of policy responsibilities for the regulation of banks can achieve the first†best allocation and ensure financial stability. While national governments design banking regulations, the federal policy maker authorises inter†regional income redistribution payments throughout the federation. Our results suggest that strengthening national responsibilities in banking regulation and supervision in the course of the further development of the European banking union may be advisable.

Suggested Citation

  • Wolfram Berger & Yoko Nagase, 2018. "Banking Union In Europe: How Much Centralisation Is Needed?," Bulletin of Economic Research, Wiley Blackwell, vol. 70(1), pages 50-67, January.
    • Handle: RePEc:bla:buecrs:v:70:y:2018:i:1:p:e50-e67
    DOI: 10.1111/boer.12126
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    References listed on IDEAS

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