Should Denmark and Sweden join the banking Union?

Though outside the euro area, Denmark and Sweden could benefit from joining the European Union’s banking union.

Publishing date: 24 June 2020
Authors: Dirk Schoenmaker Svend E. Hougaard Jensen

An important policy discussion is ongoing in Denmark and Sweden on joining the European Union’s banking union. Joining would bring pros and cons. A major issue is the supervision and resolution at the national level of large banks with a Scandinavian footprint. It is not evident that Denmark and Sweden would be able to resolve these large banks by themselves, if and when needed.

The main rationale for joining the banking union is cross-border banking in the EU internal market. The banking systems of Denmark and Sweden have similar cross-border characteristics to euro-area countries, suggesting that the rationale for joining is similar. It would also be a choice in favour of increased cross-border banking and less national banking,

Moreover, both countries have large banks which may be too big to save at the national level, but not at the banking-union level. Next, joining banking union would put the large Danish and Swedish banks in a peer group of European banks. That would lead to more even-handed supervisory treatment and also facilitate comparative analysis by investors.

Nevertheless, there are some governance concerns. While euro-area countries have an automatic and full say in all banking-union arrangements, the out-countries lack certain formal powers in ultimate decision-making. We find that this may in practice be less of a problem. Finally, the out-countries have the nuclear option of leaving the banking union.

Recommended citation

Jensen, S.H. and D. Schoenmaker (2020) ‘Should Denmark and Sweden join the Banking Union?’ Policy Contribution 2020/13, Bruegel

About the authors

Dirk Schoenmaker

Dirk Schoenmaker is a Non-Resident Fellow at Bruegel. He is also a Professor of Banking and Finance at Rotterdam School of Management, Erasmus University Rotterdam and a Research Fellow at the Centre for European Policy Research (CEPR). He has published in the areas of sustainable finance, central banking, financial supervision and stability and European financial integration.

Dirk is author of ‘Governance of International Banking: The Financial Trilemma’ (Oxford University Press) and co-author of the textbooks ‘Financial Markets and Institutions: A European perspective’ (Cambridge University Press) and ‘Principles of Sustainable Finance’ (Oxford University Press). He earned his PhD in economics at the London School of Economics.

Before joining RSM, Dirk was Dean of the Duisenberg school of finance from 2009 to 2015. From 1998 to 2008, he served at the Netherlands Ministry of Finance. In the 1990s, he served at the Bank of England. He is a regular consultant for the IMF, the OECD and the European Commission.
Svend E. Hougaard Jensen

Svend E. Hougaard Jensen is a Non-Resident Fellow at Bruegel. He is also a Professor of Economics at the Department of Economics at Copenhagen Business School (CBS), Director of the Pension Research Centre (PeRCent) at CBS, and a Member of the Systemic Risk Council in Denmark. From 2017-2021, Svend was Chairman of Bruegel’s Scientific Council.

Svend holds an MSc in Economics from the University of Aarhus, an MA in Economics from the University of Manchester, and a PhD in Economics from the London Business School.

Svend’s research has focused on generational and macroeconomic effects of changing demographics; public and private pensions; monetary unification and fiscal policy in Europe; sustainability and management of public debt; structural reforms; and macroeconomic policy in general.

He has published numerous articles in learned journals and books. He has also written or edited several books, including Fiscal Aspects of European Monetary Integration (CUP), Macroeconomic Perspectives on the Danish Economy (Macmillan), Using Dynamic General Equilibrium Models for Policy Analysis (North-Holland), Uncertain Demographics and Fiscal Sustainability (CUP), Reform Capacity and Macroeconomic Performance in the Nordic Countries (OUP), and The Danish Pension System: Design, Performance and Challenges (OUP, to appear).

Svend has contributed to many agency and government reports, and he has served as a consultant to the World Bank and the European Commission. He also regularly writes op-ed articles published by newspapers and magazines.

Homepage: https://sf.cbs.dk/shj/