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Barriers to a European Banking Union

Author

Listed:
  • McAdam, Peter
  • Capelle, Damien
  • Fernandes, Adriano
  • Krüger, Jan Jakob

Abstract

We quantify barriers to cross-border bank lending to firms within the euro area and their consequences for credit allocation and output. Using loan-level data from the European credit registry (AnaCredit) and group structures (RIAD),we estimate barriers to relationship formation, loan pricing, and banks’ branching decisions at the country-pair level. We find that barriers to cross-border relationships between banks and firms and cross-border bank entry are large while wedges on interest rates and loan quantities are comparatively small. The estimated wedges are strongly associated with differences in national banking regulations, measured using a novel dataset on regulatory distances. We embed our estimates into a quantitative spatial general equilibrium model with heterogeneous banks and firms subject to cross-border frictions in relationship formation, loan pricing, and bank entry. Partially relaxing frictions predicts sizable and heterogeneous output gains across euro area countries. These gains are primarily driven by increases in capital and labor rather than improvements in allocative efficiency. JEL Classification: F36, G21, O16

Suggested Citation

  • McAdam, Peter & Capelle, Damien & Fernandes, Adriano & Krüger, Jan Jakob, 2026. "Barriers to a European Banking Union," Working Paper Series 3249, European Central Bank.
    • Handle: RePEc:ecb:ecbwps:20263249
    Note: 50336
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    JEL classification:

    • F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance

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