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An empirical analysis of national differences in the retail bank interest rates of the euro area

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Author Info
Massimiliano Affinito () (Banca d'Italia)
Fabio Farabullini () (Banca d'Italia)
Abstract

The availability of new harmonized data on bank interest rates allows a rigorous assessment to be made of cross-country price homogeneity/heterogeneity in euro area retail credit markets. Econometric analysis shows that the banking market is still highly segmented and that the degree of integration in a single country (Italy, taken as a benchmark for integration) is greater than in the euro area. However, national differences can be partially explained by variables reflecting the characteristics of domestic depositors and borrowers (“demand side” regressors, such as risk exposure, disposable income, alternative financing sources, average firm size) and the characteristics of the banking systems (“supply side” regressors, such as banking market concentration, asset and liability structure). The euro area prices appear different because national banking products appear different or because they are differentiated by national factors. Once these factors have been controlled for, many differences disappear.

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Paper provided by Bank of Italy, Economic Research Department in its series Temi di discussione (Economic working papers) with number 589.

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Date of creation: May 2006
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Handle: RePEc:bdi:wptemi:td_589_06

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Related research
Keywords: bank interest rates; convergence; integration;

Find related papers by JEL classification:
E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Determination of Interest Rates; Term Structure of Interest Rates
E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Mortgages

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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Christoffer Kok Sørensen & Jung-Duk Lichtenberger, 2007. "Mortage interest rate dispersion in the euro area," Working Paper Series 733, European Central Bank. [Downloadable!]
  2. Vajanne, Laura, 2007. "Integration in euro area retail banking markets – convergence of credit interest rates," Research Discussion Papers 27/2007, Bank of Finland. [Downloadable!]
  3. Schalck, Christophe, 2006. "Coordination des Politiques Budgétaires dans une Union Monétaires Hétérogène: Modélisation et Application à l'UEM," MPRA Paper 1435, University Library of Munich, Germany. [Downloadable!]
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