European financial systems in post-crisis recovery (FINSYS RECOVERY)

Abstract:

FINSYS RECOVERY i) provides a detailed view of how European financial systems (FS) evolved in the period 2005-2020;and ii) quantitatively investigates how shocks in the shape of crisis events (e.g. the global financial crisis, the EURO crisisand the COVID-19 pandemic) and related policy responses influenced FS trajectories across European countries in thisperiod.The project seeks to generate new ways of understanding FS and their transformations by drawing on an interdisciplinaryframework based on financial economics, political economy and corporate governance. By regressing panel data onmacroeconomic outcomes and policy responses of different crises on an innovative country-based FS metric, it appliesmethods that are uncommon in research on FS. The FS metric enables the construction of a spectrum of FS acrosscountries that can be tracked over time. This, in turn, allows for looking beyond the extant literature’s dichotomousconceptualization of FS as either bank- or market-based. In addition, it sheds light on issues that are often neglected in FSresearch, such as the role of cross-border listings or borrowing and the role of non-bank financial intermediaries. By using alarge European panel dataset, the project seeks to generate new insights on the direction, speed and lag by which shocksinfluence FS. FINSYS RECOV thereby complements earlier research that typically focuses on how outcomes of shocks varybetween different FS, or case-based research on how select small numbers of FS have responded to particular shocks.Generating insights on how FS respond to shocks, and if EU FS are converging or diverging, could hardly be timelier. Thereare ongoing political initiatives to promote deeper integration of EU FS, while at the same time counterfactors such as Brexitand nationalism appear to pull the EU apart. And this occurs against the backdrop of another major economic crisis, as thegrip COVID-19 has tightened over our economies.