European Financial Market Integration: Evidence on the Emergence of a Single Eurozone Retail Banking Market

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Abstract
This study provides new evidence on the emergence of a single Eurozone retail banking market. Given the heterogeneous nature of retail lending in the Eurozone, the study advocates to apply cointegration methodology to investigate integration in the presence of country-specific credit rates. The empirical results indicate only very limited evidence for an integrated retail banking market before January 1, 1999, but there is evidence for statistically significant structural breaks that have come along with the introduction of the single currency. For the EMU period, the results provide a first picture of an emerging uniform Eurozone banking market. This tendency is more pronounced for the corporate lending market, while consumer lending markets are still more fragmented. After investgating the interest pass-through of monetary policy on retail interest rates the study concludes that the single currency has the potential to "complete" the single market not so much in the sense of cross-border arbitrage, but by means of a smooth and uniform pass-through process in the presence of a single monetary policy.