The Implications of Economic Integration for Financial Stability: A European Perspective
LAW AND ECONOMICS OF RISK IN FINANCE, Peter Nobel and Marina Gets, eds., pp. 95-100, Schulthess, Zürich, 2007
7 Pages Posted: 28 May 2008 Last revised: 7 Aug 2008
Date Written: June 1, 2007
Countries in Western Europe have experienced increased synchronization of real activity since the early 1980s and increased financial integration since the early 1990s. What are the implications of this increased economic integration for financial stability? Measures of systemic risk at large European financial institutions indicate that risks to financial stability have not declined during the period 1990-2004, and that bank systemic risk profiles have become more similar.
At the same time, the sensitivity of bank systemic risk measures to common real and financial shocks has increased in most countries. Overall, these results suggest that the integration process does not necessarily entail an unambiguously positive effect on financial stability.
Keywords: financial integration, financial risk management, financial institutions, financial stability
JEL Classification: K22, G10, G21
Suggested Citation: Suggested Citation