Time Varying Integration in EMUUs Retail Banking to Non-Financial Corporations

Abstract

This paper investigates the process of integration within the European Economic and Monetary Union (EMU) retail banking by analysing deposit and lending rates to non-financial corporations during the normal and crisis periods over 2003-2014. The paper assesses the impact of the Global Financial Crisis (GFC) as well as the European Debt Crisis (EDC) on the integration process. Secondly, it also investigates the relationship between economic growth and the degree of integration by comparing integration across three groups of sample EMU countries, classified based on their GDP. An important contribution of the paper is that instead of relying on one measure, it employs five indicators to assess multiple dimensions of integration process, that are, beta convergence, sigma convergence, variance ratio, asymmetric DCC and dynamic cointegration. The empirical results point towards weak degree of integration in retail banking sector, and the twin crises have worsened the progress. In addition, the credit market, is observed to be more heterogeneous than the deposits market. Furthermore, the small term maturity products are more converged than longer maturity products.