"Financial Regulation, Banking Integration and Business Cycle Synchronisation"

The seminar will discuss how monetary unification and the associated legislative and regulatory harmonisation policies in financial services have affected cross-border capital flows in Europe and also the role of the increased level of financial globalisation on the propagation of shocks across countries, with the emphasis on the ongoing process of financial integration in Europe. In particular, the seminar will discuss how (i) the introduction of the euro has contributed to the significant increase in cross-border banking and investment flows between Member States; (ii) how increases in financial integration between advanced countries correlate negatively with business cycle synchronisation; and (iii) how financial integration during the recent period of financial instability has been associated with a greater degree of business cycle synchronisation, implying contagion. The findings suggest that while recent efforts to further harmonise the regulation of financial services (via the creation common banking supervisory agencies) may further increase financial integration in the euro area, the conduct of monetary and economic policy may become more difficult because financial linkages tend to magnify country-specific shocks in quieter times and lead to contagion in periods of financial crisis. A sandwich lunch will be provided, starting at 12:30