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Purpose – The purpose of this paper is to assess the impact of the impact of the single currency on the institutional design of the banking union, through evidence on the financial integration process. Design/methodology/approach – Data analysis uses multiple sources of data on key drivers of financial fragmentation. The paper starts from a snapshot the status of financial integration and then identifies the main components of this trend. Findings – Evidence shows that financial integration in the euro area between 2010 and 2014 retrenched at a quicker pace than outside the monetary union. Home bias persisted. Under market pressures, governments compete on funding costs by supporting “their” banks with massive state aids, which distorts the playing field and feed the risk-aversion loop. This situation intensifies frictions in credit markets, thus hampering the transmission of monetary policies and, potentially, economic growth. Taking stock of developments in the euro area, this paper discusses the theoretical framework of a banking union in a single currency area with decentralised fiscal policy sovereignty. It concludes that, when a crisis looms over, a common fiscal backstop can reduce pressures of financial fragmentation, driven by governments’ moral hazard and banks’ home bias. Research limitations/implications – Additional research is required to deepen the empirical analysis, with econometric modelling, on the links between governments’ implicit guarantees and banks’ home bias. This is an initial data analysis. Originality/value – Under market pressure, governments in a single currency area tend to be overprotective (more than countries with full monetary sovereignty) towards their own banking system and so trigger financial fragmentation (enhancing banks’ home bias). To revert that, a common fiscal backstop is an essential element of the institutional design. The paper shows empirical evidence and theory, as well as it identifies underlying market failures. It links the single currency to the institutional design of a banking union. This important dimension is brought into a coherent framework.

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854 Despite a pandemic, crowdfunding continues to be a growing source of finance for small businesses across the EU. This article discusses nature and business typology of digital platforms that raise funds from the crowd. In the effort to support the ongoing uptake of new technologies in financial services, the first harmonised regime for the intermediation of financial instruments and loans to businesses via digital crowdfunding platforms has recently entered into application and promises to change the landscape of this financial service in the years to come. The new policy framework creates a robust EU-wide license, with requirements that support integration with social media, as well as the progressive creation of pan-European one-stop-shop platforms that offer multiple funding tools. Moreover, the regime also tests new boundaries in investor protection and behavioural finance, with the introduction of a system of warnings, targeted transparency on multiple levels and a conflict-of-interest framework to ensure that the platform acts as a risk neutral gatekeeper. The jury is still out and there are a number of unknowns, as this new framework will have to face the reality of well-established legal and supervisory national obstacles in its implementation.

Now that the worst of the financial storm is over, regulators are setting new strategies to deal with the systemic importance of the €427 trillion ($604 trillion) over-the-counter (OTC) derivatives market. This paper explores the three major sources of disruptive effects in OTC derivatives: liquidity, counterparty risk and legal uncertainty. These risks affect the value chain of a typical derivative transaction and weaken the economic and legal rationale behind their widespread use. On the policy side, commitments have been made at G-20 level to draft uniform rules on a global scale "to build a safer financial system". This paper finds, however, that in practice, the EU and US proposals lay out divergent roads to meet common objectives and the author warns that such divergences may encourage regulatory and supervisory arbitrage. Policy options currently under discussion may need further revision. For instance, access to network clearing infrastructures, such as CCPs, can only be made available to a restricted group of eligible derivative products. Mechanisms of adverse selection and moral hazard, then, may at any time affect the efficient functioning of these crucial infrastructures for financial markets.