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

  • Rughoo, Aarti
  • Sarantis, Nicholas

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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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
Contact details of provider: Web page: http://www.elsevier.com/locate/intfin

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  1. Barro, Robert J & Sala-i-Martin, Xavier, 1992. "Convergence," Journal of Political Economy, University of Chicago Press, vol. 100(2), pages 223-51, April.
  2. Schüler, Martin & Heinemann, Friedrich, 2002. "How integrated are the European retail financial markets? A cointegration analysis," Research Notes 3b, Deutsche Bank Research.
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  16. Vajanne, Laura, 2007. "Integration in euro area retail banking markets – convergence of credit interest rates," Research Discussion Papers 27/2007, Bank of Finland.
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