Consumer Credit Rates in the Eurozone: Evidence on the Emergence on a Single Retail Banking Market. ECRI Research Report No. 2, 1 January 2002

[From the Introduction] This study provides new evidence on the emergence of a single eurozone retail banking market with particular reference to consumer credit. Given the heterogeneous nature of consumer credit products in the eurozone, the authors reject the earlier proposition of the Cecchini study, which equates banking market integration with identical interest rates throughout the eurozone. The present study advocates the use of the co-integration methodology, which allows us to investigate integration in the presence of country-specific credit rates. The empirical results indicate only very limited evidence of an integrated retail banking market prior to 1 January 1999, pointing to the limited effectiveness of the single market cum Second Banking Directive in particular in integrating consumer credit markets. The relationship of national lending markets with the remaining eurozone lending markets, however, exhibits strong signs of structural changes that have come along with the introduction of the single currency. Regarding this period under monetary union, 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. The study identifies three possible driving forces of this integration process: cross-border borrowing and lending (arbitrage), a competitive national and international retail banking environment, and a smooth and uniform passthrough of interest rate changes onto lending rates. While the extent of cross-border retail banking is still very limited and interest rate pass-through is working most efficiently and uniformly in the more competitive corporate lending market, the authors conclude that the single currency has the potential to “complete” the single market in a very special sense. It is not so much cross-border arbitrage that has so far produced the “statistical signs” of an uniform retail banking market, but a smooth and uniform passthrough of interest rate changes induced by the single monetary policy. The lack of evidence of integration in consumer credit so far therefore also points to the relevance of competition policy for creating a uniform consumer credit market in the eurozone

Interest Rate Pass-through in an Enlarged Europe: The Role of Banking Market Structure for Monetary Policy Transmission in Transition Countries

This study investigates the transmission of monetary policy onto retail bank interest rates inthe eight Central and Eastern European countries (CEECs) that joined the European Union in2004. Focussing on the period from 1993 to 2003, we employ a unifying empirical passthrough model that allows for thresholds, asymmetric adjustment, and structural changes over time. Our results show that the pass-through in many CEECs is faster and more complete than in the eurozone and that there may be a high potential for convergence of the pass-through across CEECs with market concentration, bank health, foreign bank participation and monetary policy regime as conditioning factors.monetary economics ;

Regional Versus Global Integration of Euro Zone Retail Banking Markets: Understanding the Recent Evidence from Price-Based Integration Measures

This study investigates the current state of euro zone banking market integration by applying convergence and cointegration measures to mortgage and short-term corporate loan markets. These two measures of integration often lead to contradicting conclusions and are therefore comparatively analyzed. As an innovation to the literature, convergence measures are exposed to a difference-in-differences methodology which allows separating euro zone-specific from global integration effects. Our results show that euro zone-specific convergence exists mainly in the pre-EMU period whereas cointegration is especially prominent before 1993 and after 1998 but hardly present in between. Overall, we conclude that (1) in the presence of exchange rate uncertainty, cross-country convergence should focus on margins rather than rates, (2) convergence of retail banking interest rates is largely a result of integrating money and bonds markets in anticipation of the single currency and (3) a monetary union can produce (co)integration when retail rates react similarly to a single monetary policy rate. Thus, for the euro zone it appears that convergence measures provide the most information for the period leading up to the EMU whereas cointegration is more useful during the EMU period as well as prior to the ERM crisis in 1992.monetary economics ;

Expected versus Unexpected Monetary Policy Impulses and Interest Rate Pass-Through in Eurozone Retail Banking

This paper follows up on recent studies of the Eurozone interest rate pass-through. Using a generalized empirical approach that allows for a variety of different specifications of the pass-through, including asymmetric adjustment, the role of interest rate expectations, proxied by EURIBOR futures, in determining retail banking product pricing is explored. It is shown that the pass-through is faster when monetary policy changes are correctly anticipated. However, this result is limited to the loan market and is here more pronounced for positive interest rate shocks, while particularly deposit rates are found to be rigid,suggesting an important role of competitive banking markets for the pass-through process. Overall, our results show that a well-communicated monetary policy is important for a speedier and a more homogenous pass-through and thus for a more effective monetary policy in the Eurozone.monetary economics ;

Convergence in Eurozone retail banking? What interest rate pass-through tells us about monetary policy transmission, competition and integration.

This study aims at unifying the empirical research on the financial part of the monetary transmission process in the Eurozone between 1993 and 2002. After endogenously determining structural breaks, we select an optimal pass-through model for a series of national retail interest rates for each break-free sub-period. We apply these models to the pass-through of monetary policy shocks as measured by the overnight money market rate as well as to a measure of cost of funds and furthermore allow the pass-through process to be characterised by thresholds and asymmetries. We find that structural breaks occur on average well before EMU. We confirm the result of previous studies that report increases in size and speed of the pass-through. This finding holds, however, only when using the monetary policy rate proxy, indicating an increase in monetary policy efficiency. When using pass-through measures as an indicator for Eurozone banking market integration, the view that the markets are still fragmented is supported, with the possible exemption of short-term lending to enterprises. Finally, our analysis of the structural determinants of the pass-through process confirms the widely held view that nominal, real, and structural convergence can lead to a more homogenous transmission process in the Eurozone. However, full convergence may yet be precluded by legal and cultural differences.monetary economics ;

Banking Market Integration in the SADC Countries: Evidence from Interest Rate Analyses

This paper investigates the state, development and drivers of banking market integration in the member countries of the Southern African Development Community (SADC) by employing interest rate data. We first conduct a principal component analysis and find evidence for both increasing monetary integration and banking integration in loan and deposit markets. These integration processes are not developing uniformly and we can identify a convergence club. As banking market integration can be a genuine process or simply be driven by monetary integration, we also investigate the interest rate pass through from national and South African Central bank interest rates onto national retail rates. With respect to the convergence club we find both, genuine and monetary-integration driven processes though the latter dominate. We conclude that a selective expansion of the Common Monetary Area is possible but needs to be complement by efficient financial development policies.Economics (Jel: A)

The geography of European cross-border banking : the impact of cultural and political factors

We investigate the determinants of European banking market integration with a focus on the potentially limiting role of cultural and political factors. Employing a unique data set of European cross-border loans and deposits, the study uses various gravity models that are augmented by societal proxies. While trade-theoretic reasoning can explain part of the surge in cross-border banking, we demonstrate that distance and borders still matter in the geography of European cross-border banking. Moreover, we can identify cultural differences and different legal family origin as important barriers to integration

Cross-Correlation of Motor Activity Signals from dc-Magnetoencephalography, Near-Infrared Spectroscopy, and Electromyography

Neuronal and vascular responses due to finger movements were synchronously measured using dc-magnetoencephalography (dcMEG) and time-resolved near-infrared spectroscopy (trNIRS). The finger movements were monitored with electromyography (EMG). Cortical responses related to the finger movement sequence were extracted by independent component analysis from both the dcMEG and the trNIRS data. The temporal relations between EMG rate, dcMEG, and trNIRS responses were assessed pairwise using the cross-correlation function (CCF), which does not require epoch averaging. A positive lag on a scale of seconds was found for the maximum of the CCF between dcMEG and trNIRS. A zero lag is observed for the CCF between dcMEG and EMG. Additionally this CCF exhibits oscillations at the frequency of individual finger movements. These findings show that the dcMEG with a bandwidth up to 8 Hz records both slow and faster neuronal responses, whereas the vascular response is confirmed to change on a scale of seconds