Restoring people’s trust in the single market for banking and finance

Abstract

The economic crisis has triggered a retrenchment of cross-border banking and finance in Europe. While the reforms of the last ten years achieved tremendous progress in the build-up of a common regulatory and supervisory framework across Europe, banking and financial activities are still organised along national borders, even within the euro area. This national fragmentation is ultimately driven by a lack of trust. Trust is missing among national authorities on the one hand and among national electorates on the other. The first continue to limit cross border banking, as long as the conundrum between risk-reduction and risk-sharing is not resolved. The latter, in particular households and businesses, struggle to perceive the benefits stemming from banking and financial integration in Europe, while they appreciated full well the social costs of generated by excessive financial growth and macroeconomic imbalances. Yet, as the US response to the crisis shows, integrated markets prove to be more resilient at absorbing shocks and restoring financing opportunities. The session aims to discuss the technical and political stalemate in which Europe seems to find itself with respect to these issues. In particular, it aims to investigate both the institutional underpinnings and courses of action needed to overcome this lack of trust and how to restore confidence with the goal of achieving an integrated European financial system.