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Framing Banking Union in the Euro Area: Some empirical evidence

by Diego Valiante
03 February 2014

Framing Banking Union in the Euro Area: Some empirical evidence

Diego Valiante

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Evidence shows that financial integration in the euro area is retrenching at a quicker pace than outside the union. Home bias persists: Governments compete on funding costs by supporting ‘their’ banks with massive state aids, which distorts the playing field and feeds the risk-aversion loop. This situation intensifies friction in credit markets, thus hampering the transmission of monetary policies and, potentially, economic growth. This paper discusses the theoretical foundations of a banking union in a common currency area and the legal and economic aspects of EU responses. As a result, two remedies are proposed to deal with moral hazard in a common currency area: a common (unlimited) financial backstop to a privately funded recapitalisation/resolution fund and a blanket prohibition on state aids.

Diego Valiante is Head of Capital Markets Research at the Centre for European Policy Studies (CEPS).


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  • Author
    Diego Valiante
    Diego Valiante
Framing Banking Union in the Euro Area: Some empirical evidence
Download Publication

4007 Downloads