Completing banking union would help the banks to develop their cross-border strategy. Would relying on such institutions be beneficial, or would it add more systemic risk? Let’s look at an example. If Spain had not had two large international banks and the whole sector had been exposed solely to the Spanish market, the crisis would have been much worse.
We need cross-border banks at the European level. In a monetary union, private sector risk-sharing through cross-border banking and capital markets is essential to cushion asymmetric macroeconomic shocks. Systemic risk would not increase because the public backstop in case of bank failure would be European rather than national. There is an ongoing debate on this issue...