Work

Moral Hazard, central bankers, and Banking Union: professional dissensus and the politics of European financial system stability

Year: 2023

Type: article

Abstract: Banking Union was a major policy response to the financial crisis that began in 2007 and the subsequent Eurozone crisis. Moral hazard has frequently been presented as a major cause of these crises. Therefore, Banking Union can be understood as a response to moral hazard in relation to banks and sovereigns. Yet, moral hazard was an acknowledged and supposedly managed problem prior to these events. Paradoxically, moral hazard has been used to justify contradictory policy options to safeguard European financial system stability, such as decentralized institutional arrangements for banking supervision but also a centralized system coordinated by the European Central Bank (ECB). To address this paradox, this paper investigates moral hazard as a political concept. Based on a comparison of how central bankers from the Bundesbank and the ECB understand and use the moral hazard concept, this paper argues that moral hazard is closer to the realm of politics than expertise.

Source: Journal of European Integration

DOI: 10.1080/07036337.2022.2156501

Authors: Laura Pierret, David Howarth

Institution: University of Luxembourg

Language: English

Topic: Global Financial Regulation and Crises

Subfield: Finance

Field: Economics, Econometrics and Finance

Domain: Social Sciences

SDG: Peace, justice, and strong institutions

Open Access status: hybrid

Funders: Université du Luxembourg, Academic Association for Contemporary European Studies, Fonds National de la Recherche Luxembourg, Erasmus+