Post-Crisis Reversal in Banking and Insurance Integration: An Empirical Survey

This empirical essay reviews post-crisis integration in banking and insurance. Looking at aggregate data, we find that cross-border banking flows have been reversed, in particular into the CESEE and peripheral counties (Portugal, Ireland and Greece). But data at the individual firm level for banks and insurers indicate that cross-border activities remain persuasive within Europe. This intensity of cross-border activities indicates that the potential for coordination failure among national authorities remains high. Host country supervisors have so far responded by ring-fencing activities in subsidiaries, leading to further fragmentation. This essay argues that if we want to keep the benefits of both the single financial market and financial stability, we need new supranational institutions that encourage integration. The advance to Banking Union with integrated supervision and resolution can provide the necessary policy push for an integrated approach.