Abstract
We build a financial resilience index capturing the structure and stability features of financial systems and benchmark EU financial systems against their ability to enhance stable growth and international risk sharing. The index comprises financial openness, market orientation, equity deepening, maturity structure, and institutional soundness. Our results show that: (i) EU financial systems are highly heterogeneous and converge to a clustered pattern; (ii) the index is highly significant in growth regressions, suggesting that financial structure and institutional soundness are key to enduring growth; (iii) the heterogeneity of EU financial systems has implications for the vulnerability to domestic output shocks: the risk-sharing mechanism is more effective in the market-based and institutionally sound economies that group in the top financial clusters, whereas unsmoothed consumption is higher in economies belonging to the low-resilience clusters, especially in the aftermath of the global financial crisis, when the credit channel is significantly downsized.
Published Version
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