Overview
The European Banking Union can look integrated in realized loan prices while remaining fragmented in access. This series separates bank-group entry, bank-firm relationship formation, and the pricing and quantity of links that survive. Administrative data show strong home bias and selection into large cross-border relationships; regulatory distances are associated most clearly with the two extensive margins, but not as causal proof. A calibrated euro-area model tests a 10% reduction in relationship frictions with the branch and subsidiary network fixed, predicting more capital, labor, and output, with limited TFP and uneven gains. The evidence supports access as the central problem while leaving real-reform effects, new entry, and equal reach conditional and unresolved.
Learning outcomes
- Cross-border loan prices can converge even while entry and bank-firm relationship formation remain rare.
- From 2019 onward, 5.6% of euro-area lending was cross-border, while fewer than 1% of relationships were.
- Regulatory distance is strongly associated with entry and relationship wedges, but the evidence is correlational, not causal.
- In a fixed-network model experiment, lowering relationship wedges 10% predicts 1.6% higher GDP, mostly through capital and labor rather than TFP.
- Modeled gains vary across countries and do not guarantee equal access; within-country user-cost dispersion rises in almost all countries.
Keywords
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PlansFAQ
Why can the European Banking Union remain fragmented when cross-border loan rates converge?
The European Banking Union can remain fragmented because rates are observed only after a bank enters and a firm-bank relationship forms; many potential links disappear earlier.
How is cross-border banking measured in the European Banking Union?
The study uses operational locations for lending relationships and ultimate-parent nationality for banking-group entry. A foreign-owned local branch can therefore count as domestic lending but foreign group supply.
Do national regulatory differences cause Europe’s banking fragmentation?
Not conclusively. The paper finds strong associations between regulatory distance and foreign entry or relationship wedges, but country conditions and policy dimensions move together, so the evidence is not causal proof.
What does the model predict if cross-border relationship frictions fall?
With the existing branch and subsidiary network fixed, a modeled 10% reduction predicts 1.6% higher euro-area GDP, 2.4% more capital, 1.6% more labor, and only 0.06% higher TFP.
Would a more integrated European Banking Union benefit all firms and countries equally?
No. The model predicts uneven country gains, weak convergence, and higher within-country user-cost dispersion in almost all countries because firms with better existing access benefit more.