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Integration in European retail banking: Evidence from savings and lending rates to non-financial corporations

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  • Rughoo, Aarti
  • Sarantis, Nicholas

Abstract

The aim of this paper is to investigate the integration process in the European Union retail banking sector during the period 2003–2011, by analysing deposit and lending rates to non-financial corporations. An important contribution of the paper is the application of the recently developed Phillips and Sul (2007a) panel convergence methodology which has not hitherto been employed in this area. This method analyses the degree as well as the speed of convergence, identifies the presence of club formation, and measures the behaviour of each country's transition path relative to the panel average. In addition, this is the first empirical paper that analyses the impact of the 2008 global financial crisis on the European retail banking integration process. The empirical results point to the presence of convergence in all deposit and lending rates to non-financial corporations up to 2007. In contrast, the null of convergence is rejected in all deposit and credit markets after the onset of the 2008 financial crisis. Although we still find slow convergence in a few sub-clusters of countries, the transition paths become very divergent, with the credit market being far more heterogeneous than the savings market.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of International Financial Markets, Institutions and Money.

Volume (Year): 22 (2012)
Issue (Month): 5 ()
Pages: 1307-1327

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Handle: RePEc:eee:intfin:v:22:y:2012:i:5:p:1307-1327

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Web page: http://www.elsevier.com/locate/intfin

Related research

Keywords: Integration; European retail banking; Savings rates; Lending rates; Phillips and Sul convergence method;

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  1. Barro, R.J. & Sala-I-Martin, X., 1991. "Convergence Across States and Regions," Papers 629, Yale - Economic Growth Center.
  2. Nazrul Islam, 2003. "What have We Learnt from the Convergence Debate?," Journal of Economic Surveys, Wiley Blackwell, vol. 17(3), pages 309-362, 07.
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  4. Phillips, Peter C.B. & Sul, Donggyu, 2007. "Some empirics on economic growth under heterogeneous technology," Journal of Macroeconomics, Elsevier, vol. 29(3), pages 455-469, September.
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  10. Peter C.B. Phillips & Donggyu Sul, 2005. "Economic Transition and Growth," Cowles Foundation Discussion Papers 1514, Cowles Foundation for Research in Economics, Yale University.
  11. Guglielmo Maria Caporale & Burcu Erdogan & Vladimir Kuzin, 2009. "Testing for Convergence in Stock Markets: A Non-linear Factor Approach," Discussion Papers of DIW Berlin 932, DIW Berlin, German Institute for Economic Research.
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  15. repec:diw:diwfin:diwfin01014 is not listed on IDEAS
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Cited by:
  1. Ivo Arnold & Saskia van Ewijk, 2014. "The impact of sovereign and credit risk on interest rate convergence in the euro area," DNB Working Papers 425, Netherlands Central Bank, Research Department.
  2. Codruta Boar & Gabor Hunya & Olga Pindyuk & Jan Toporowski, 2013. "Monthly Report No. 5/2013," wiiw Monthly Reports 2013-05, The Vienna Institute for International Economic Studies, wiiw.

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