Integrating Europe's Retail Banking Market: Where Do We Stand?

This report surveys recent empirical research on the state and development of retail banking integration in Europe. It finds a broad consensus that retail banking integration is still limited, although integration seems to have gained momentum more recently. At the same time, the survey finds less agreement about how to measure integration. Evidence from various types of integration measures is discussed in detail and the shortcomings of these measures are highlighted. The authors observe that these indicators need to be interpreted with care to avoid jumping to the wrong policy conclusions. The convergence of retail interest rates in particular should not be misread as a sign of European integration, nor should overall evolution in the banking sector. Rather, the evidence suggests that recent accelerations in integration have mostly been driven by integration in the wholesale financial market and financial developments in general. This conclusion underscores the need for integration policies to be supplemented by policies in the areas of competition, financial development and financial stability. Such an approach is considered vital to attaining the aims of the European integration project in the retail banking market – to provide consumers with the best savings opportunities and give investors access to deep and liquid markets for raising capital.