CE41 - Inégalités, discriminations, migrations

Financial fragmentation and inequalities in the Eurozone – FFIE

Submission summary

The Eurozone has experienced growth in economic inequalities for several decades, likely worsened by the Covid19 crisis. Financial and banking segmentation contribute to this dynamic by creating unequal financing and income opportunities across and within countries, as well as across households and firms. The main objective of this project is to investigate the links between banking and financial fragmentation and the distributions of income and wealth in the Eurozone while accounting for the European Central Bank monetary policies. We consider the heterogeneity of agents and the granularity of financial markets, which leads us to decompose the traditional channels of transmission of monetary and financial shocks and to take into account the unequal access to financing in light of the distributions of income and wealth. Special attention will be paid to agents located at the low end of the income distribution while distinguishing between indirect financing, via the banking system, and direct financing on financial markets.
We first assess the extent to which banking fragmentation contributes to the worsening of income inequalities through differences in terms of credit supply, interest rates and risk management in the Eurozone. The purpose is to define, in the short-term, the conditions necessary for “unconventional measures” to promote an equitable credit recovery. A similar approach will be implemented with macro-prudential policies associated with, in the longer term, which will allow for a re-assessment of the debate on the incompleteness of the banking union, not only in terms of financial stability but also by considering the conditions of access to credit of the poorest. On a normative level, this analysis will be complemented by investigating a possible redefinition of the European Central Bank's objectives. The purpose is to show that taking inequalities into account can not only contribute to reducing output gaps and income and wealth inequalities, but also to stabilizing the financial cycle.
Second, we will examine the role that bond and equity markets play in the distributions of income and wealth. After a theoretical redefinition of the investment and portfolio transmission channels, we will clarify the role of the liquidity channel by taking into account agents’ heterogeneity. The redistributive impact of the Quantitative Easing policy will be confronted with the reality of a fragmented European bond market that may counteract the expected positive effects. Furthermore, we will test the hypothesis that granular stock markets characterized by a high concentration of wealth in a few listed companies or in certain sub-segments, influence investment opportunities and inequalities across individuals, firms and countries. The objective is to identify the link between unequal cost of capital across countries and firms, and the dispersion of income and wealth. The analysis will provide new conclusions about the main determinants of a virtuous circle between financial markets and inequality reduction.
In this project, we aim to show that full regional financial and banking integration can contribute to a fairer Europe and that the ECB can play a key role beyond the promotion of monetary and financial stability, in reducing inequalities.

Project coordination

Céline Gimet (Aix-Marseille School of Economics)

The author of this summary is the project coordinator, who is responsible for the content of this summary. The ANR declines any responsibility as for its contents.


Département de finance, assurance et immobilier, Université Laval
AMSE Aix-Marseille School of Economics

Help of the ANR 346,441 euros
Beginning and duration of the scientific project: January 2022 - 48 Months

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