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The bank’s risk insurance and the EMU

  • Enzo Dia

    ()

    (Department of Economics, University of Milan-Bicocca and University of Strathclyde.)

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Banks provide insurance against interest rate shocks and real shocks. After the introduction of the common currency the credit system tends to take more of the risk of the private sector, reducing the overall risk of the economy and increasing the risk sharing among different countries and regions. The increased diversification that the introduction of the Euro has allowed, has increased the smoothing of interest rate shocks, but it has increased the incentive to smooth real shocks unevenly. The integration of the credit system, where the authority to regulate national banking system is transferred to the ECB, would change in a relevant way the reaction of the banking system to shocks. The model shows that asymmetries in the transmission of monetary policy would be reduced. On the other hand, a common market for banking activities might tend to amplify the asymmetric impact of real shocks.

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File URL: http://dipeco.economia.unimib.it/repec/pdf/mibwpaper72.pdf
File Function: First version, 2004
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Paper provided by University of Milano-Bicocca, Department of Economics in its series Working Papers with number 72.

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Length: 39 pages
Date of creation: May 2004
Date of revision: May 2004
Handle: RePEc:mib:wpaper:72
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  1. Melitz, Jacques & Vori, Silvia, 1992. "National Insurance Against Unevenly Distributed Shocks in a European Monetary Union," CEPR Discussion Papers 697, C.E.P.R. Discussion Papers.
  2. Fama, Eugene F., 1985. "What's different about banks?," Journal of Monetary Economics, Elsevier, vol. 15(1), pages 29-39, January.
  3. Mitchell Berlin & Loretta J. Mester, 1997. "Deposits and relationship lending," Working Papers 96-18, Federal Reserve Bank of Philadelphia.
  4. Hughes Hallett, Andrew & Ma, Yue & Melitz, Jacques, 1994. "Unification and the Policy Predicament in Germany," CEPR Discussion Papers 956, C.E.P.R. Discussion Papers.
  5. Jacques Mélitz & Frédéric Zumer, 2000. "Interregional and International Risk Sharing and Lessons for EMU," EUI-RSCAS Working Papers 2, European University Institute (EUI), Robert Schuman Centre of Advanced Studies (RSCAS).
  6. D. J. Aigner & C. M. Sprenkle, 1968. "A Simple Model Of Information And Lending Behavior," Journal of Finance, American Finance Association, vol. 23(1), pages 151-166, 03.
  7. Cosimano, Thomas F. & McDonald, Bill, 1998. "What's different among banks?," Journal of Monetary Economics, Elsevier, vol. 41(1), pages 57-70, February.
  8. Stiglitz, Joseph E & Weiss, Andrew, 1992. "Asymmetric Information in Credit Markets and Its Implications for Macro-economics," Oxford Economic Papers, Oxford University Press, vol. 44(4), pages 694-724, October.
  9. Mitchell Berlin & Loretta J. Mester, 1997. "On the Profitability and Cost of Relationship Lending," Center for Financial Institutions Working Papers 97-43, Wharton School Center for Financial Institutions, University of Pennsylvania.
  10. Santomero, Anthony M. & Trester, Jeffrey J., 1998. "Financial innovation and bank risk taking," Journal of Economic Behavior & Organization, Elsevier, vol. 35(1), pages 25-37, March.
  11. repec:spo:wpecon:info:hdl:2441/765 is not listed on IDEAS
  12. Hughes Hallett, A J & Ma, Yue, 1993. "East Germany, West Germany, and Their Mezzogiorno Problem: A Parable for European Economic Integration," Economic Journal, Royal Economic Society, vol. 103(417), pages 416-28, March.
  13. Jaffee, Dwight M & Russell, Thomas, 1976. "Imperfect Information, Uncertainty, and Credit Rationing," The Quarterly Journal of Economics, MIT Press, vol. 90(4), pages 651-66, November.
  14. Joseph P. Hughes & William W. Lang & Loretta J. Mester & Choon-Geol Moon, 1996. "Safety in numbers? Geographic diversification and bank insolvency risk," Working Papers 96-14, Federal Reserve Bank of Philadelphia.
  15. Fried, Joel & Howitt, Peter, 1980. "Credit Rationing and Implicit Contract Theory," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 12(3), pages 471-87, August.
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