Financial Fragmentation and Economic Growth in Europe

GSME Discussion Paper Series

46 Pages Posted: 27 Apr 2015

See all articles by Isabel Schnabel

Isabel Schnabel

University of Bonn - Institute for Financial Economics and Statistics; Max Planck Society for the Advancement of the Sciences - Max Planck Institute for Research on Collective Goods

Christian Seckinger

Johannes Gutenberg University Mainz - Gutenberg School of Economics and Management; Goethe University Frankfurt - Graduate School of Economics, Finance and Management (GSEFM)

Multiple version iconThere are 2 versions of this paper

Date Written: März 20, 2015

Abstract

Using industry data from Eurostat and applying the Rajan-Zingales methodology, we investigate the real growth effects of banking sector integration in the European Union. Our sample stretches from 2000 until 2012 and includes the phase of rapid financial integration before the crisis as well as the following phase of financial fragmentation and bank deleveraging. We find evidence that banking sector integration had a more than four times stronger growth effect during the crisis than in normal times. Growth effects are also stronger in times of domestic bank deleveraging. We conclude that concerns of European policy makers about fragmentation in the European banking sector are justified and that future reintegration is an important building block of future growth perspectives in the European Union.

Keywords: Financial fragmentation, financial integration, foreign banks, cross-border lending, economic growth, financial crisis, Rajan-Zingales methodology

JEL Classification: F36, G01, G15

Suggested Citation

Schnabel, Isabel and Seckinger, Christian, Financial Fragmentation and Economic Growth in Europe (März 20, 2015). GSME Discussion Paper Series. Available at SSRN: https://ssrn.com/abstract=2599063 or http://dx.doi.org/10.2139/ssrn.2599063

Isabel Schnabel

University of Bonn - Institute for Financial Economics and Statistics ( email )

Adenauerallee 24-42
Bonn, 53113
Germany

HOME PAGE: http://www.finance.uni-bonn.de/schnabel

Max Planck Society for the Advancement of the Sciences - Max Planck Institute for Research on Collective Goods ( email )

Kurt-Schumacher-Str. 10
D-53113 Bonn, 53113
Germany
+49-228-9141665 (Phone)
+49-228-9141621 (Fax)

HOME PAGE: http://www.coll.mpg.de/team/page/isabel_schnabel

Christian Seckinger (Contact Author)

Johannes Gutenberg University Mainz - Gutenberg School of Economics and Management ( email )

Mainz
Germany

Goethe University Frankfurt - Graduate School of Economics, Finance and Management (GSEFM) ( email )

House of Finance
Grüneburgplatz 1
Frankfurt am Main, 60323
Germany

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