Towards a Single Retail Banking Market? New Evidence from Euroland

Our study reviews the process towards creating a single European retail banking market. The EU has aimed at integrating the traditionally heterogeneous banking market in Europe by means of harmonizing legislation. While the wholesale banking market integration is considered to be more advanced, retail banking integration is still in its infancy. Cross-border lending, cross-border mergers, and the promises of new technologies have not yet delivered the creation of a single retail banking market. In this paper we provide new evidence on this issue. In particular, we find that there are some tendencies for a more integrated corporate lending market, while consumer lending markets are still remaining more fragmented. We identify three reasons for a lack of integration: A lack of international arbitrage, a limited pass-through of interest rate changes onto lending rates, and a limited national and international competitive retail banking environment. The results also suggest that the introduction of the single currency may have already made a positive impact on retail banking market integration