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A New Metric for Banking Integration in Europe

A New Metric for Banking Integration in Europe

(p.219) 6 A New Metric for Banking Integration in Europe
Europe and the Euro
Reint GroppAnil K Kashyap
University of Chicago Press

This chapter is concerned with a new approach for assessing banking integration in Europe. The measurement of integration is of considerable policy relevance. The equal treatment provision is also unusual because it includes no efficiency benchmark. Previous research assessing integration has been of three varieties. One looks at the extent of cross-border direct retail operations of banks. These data are tracked by the Bank for International Settlements (BIS) and suggest that while wholesale or money market flows across borders within the euro area are large, retail flows are generally less than 1 percent of total lending. A second indicator is cross-border bank merger. The absence of such deals, say, in comparison to the number of domestic bank mergers, has also been taken as evidence against retail bank integration. The third method for detecting integration comes from the study of retail interest rates. Finally this chapter estimates a partial adjustment model to assess convergence.

Keywords:   banking, cross-border bank merger, integration, Europe, policy relevance

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