Economic Integration and Financial Stability: A European Perspective

By Gianni De Nicolo, Alexander F. Tieman

December 1, 2006

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Gianni De Nicolo, and Alexander F. Tieman Economic Integration and Financial Stability: A European Perspective, (USA: International Monetary Fund, 2006) accessed November 21, 2024

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

This paper assesses changes in synchronization of real activity and financial market integration in Western Europe and evaluates their implications for financial stability. We find increased synchronization of real activity since the early 1980s and increased equity markets integration since the early 1990s. We also find that measures of systemic risk at large European financial institutions have not declined during the period 1990-2004 and that bank systemic risk profiles have converged. At the same time, the sensitivity of bank and insurance 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.

Subject: Banking, Financial institutions, Financial integration, Financial markets, Financial sector policy and analysis, Insurance companies, National accounts, Personal income, Stock markets, Systemic risk

Keywords: Asset return covariance, Banks DDs, Economic integration, Europe, Financial integration, Financial stability, Insurance companies, Personal income, Risk interdependency, Risk profile, Risk-adjusted asset, Stock markets, Systemic risk, Variance equation, WP

Publication Details

Pages:

28
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2006/296
Stock No:

WPIEA2006296
ISBN:

9781451865561
ISSN:

1018-5941

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