Convergence of Financial Structures in Europe: An Application of Factorial Matrix Analysis

Abstract

This paper provides a quantitative assessment of whether or not the financial structures of Europe have converged in the wake of the institution of the Economic and Monetary Union and of the euro area. Starting with a broad selection of financial indicators, multidimensional data analysis techniques are used to derive a small set of composite indicators, synthesizing the evolution of national financial structures over time. Three main indicators are obtained, summarizing respectively the overall level of financial deepening, the relative weight of the banking sector and the influence of the government borrowing requirement. In general, albeit allowing for the limitations due to the shortness of the time period considered, the hypothesis of a progressive convergence of the structure of the financial systems of the EU countries appears to be broadly in line with the empirical evidence documented in the paper.