Euro area banking fragmentation in the aftermath of the crisis: a cluster analysis

Abstract

Using a hierarchical cluster analysis and considering a large range of harmonized banking indicators, this article assesses the impact of the recent crisis on the fragmentation of the euro area banking system. Results show that the crisis has led to a growing heterogeneity of banking structures across euro area countries. There is a lack of banking integration for Greece and Italy since the creation of the euro zone. Our findings confirm, therefore, the need to construct a banking union that will mitigate cross-country differences in terms of banking structure and promote a fully integrated banking system.

Keywords:

• banking fragmentation
• euro area
• crisis
• cluster analysis

JEL Classification:

• C49
• F36
• G21

Notes

¹ See the World Bank’s website for a detailed definition of these variables: http://data.worldbank.org/

² We check the robustness of our results by considering the Min-Max method for normalizing the data (see, e.g., Kok Sørensen and Puigvert Gutiérrez, 2006). The results are closed to those obtained above, except for Austria on the 2008–2011 period, which is associated with Greece and Italy in a same cluster. Results are available upon request.

³ As Kok Sørensen and Puigvert Gutiérrez (2006), we compute the average of the heights between countries on the two sub-periods. We find that this average has increased in the aftermath of the crisis, from 3.50 on the 1999–2007 period to 4.01 on the 2008–2011 period.