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Private bank deposits and macro/fiscal risk in the euro-area

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  • Michael G. Arghyrou
  • Maria Dolores Gadea

Abstract

We examine the relationship between private bank deposits and macro/fiscal risk in the euro area. We test three hypotheses: First, private bank deposits relative to Germany are determined by macro/fiscal risk factors. Second, this relationship is time-varying. Third, time-variation is driven by the level of macro/fiscal risk. Our findings validate all three tested hypotheses. They also reveal persistent fragmentation between EMU core and periphery banking systems caused by a deficit of trust in periphery banking systems, unmitigated by the introduction of OMT and European Banking Union. Our findings have implications for the introduction of the European Deposits Insurance Scheme (EDIS), for which they offer tentative support.

Suggested Citation

  • Michael G. Arghyrou & Maria Dolores Gadea, 2019. "Private bank deposits and macro/fiscal risk in the euro-area," CESifo Working Paper Series 7532, CESifo Group Munich.
  • Handle: RePEc:ces:ceswps:_7532
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    Keywords

    private bank deposits; macro; fiscal risk; Eurozone; TVP panel; fragmentation;

    JEL classification:

    • F30 - International Economics - - International Finance - - - General
    • F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration
    • F45 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Macroeconomic Issues of Monetary Unions
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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