The global financial crisis and integration in European retail banking |
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| Institution: | 1. Hertfordshire Business School, University of Hertfordshire, UK;2. Cass Business School, City University, UK;1. McDonough School of Business, Georgetown University, Washington, D.C. 20057, USA;2. Graduate School of Business, Fordham University, New York, NY 10023, USA;3. Fisher College of Business, Ohio State University, Columbus, OH 43210-1144, USA;1. Department of Finance, College of Management, National Taiwan University, No. 85, Sec. 4, Roosevelt Rd., Taipei, Taiwan;2. College of Management, Yuan Ze University, 135 Yuan-Tung Road, Taoyuan, Taiwan;1. KAIST Business School, Korea Advanced Institute of Science and Technology, Seoul, Republic of Korea;2. Wooribank, Seoul, Republic of Korea;3. Dongguk Business School, Dongguk University-Seoul, Seoul, Republic of Korea;1. University of Technology, Sydney, Finance Discipline Group, PO Box 123, Broadway, NSW 2007, Australia;2. Dipartimento di Matematica, Università degli Studi di Padova, Italy;3. Léonard de Vinci Pôle Universitaire, Finance Lab, Paris La Défense, France;4. Quanta Finanza S.r.l., Italy;5. University of Technology, Sydney, Finance Discipline Group and School of Mathematical Sciences, PO Box 123, Broadway, NSW 2007, Australia |
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| Abstract: | The aim of this paper is twofold. Firstly, to investigate the integration process within the European Union retail banking sector by analysing deposit and lending rates to the household sector during the period 2003–2011. Secondly, to assess the impact of the 2008 global financial crisis on the banking integration process, an area that is yet unexplored. 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. The empirical results point to the presence of convergence in all deposit and lending rates to the household sector up to 2007. In sharp contrast, the null of convergence is rejected in all deposit and credit markets after the onset of the 2008 financial crisis. These results show that the global crisis has had a detrimental effect on the banking integration process. We find some convergence in a few sub-clusters of countries but the rate of convergence is typically slow and several countries are identified as diverging altogether. In addition, we find that the credit market, in general, is far more heterogeneous than the savings market. |
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| Keywords: | Integration European retail banking Savings Lending rates Household sector Global financial crisis Phillip and Sul convergence method |
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