European banks and cross-selling

Abstract

According to a part of economic literature, the growing competition among financial intermediaries, together with the consequent interest margin shrink, induced many banks to enter new markets and adopt cross-selling strategies. Our results show that two kinds of banks coexist in Europe: cross-selling banks, more interested in ‘depositors’ than in loans, and traditional banks, interested in granting loans to good borrowers. The awareness of the deep difference existing between these two types of banks now operating in Europe is very important for the implementation of an effective economic policy in the face of the financial crisis. We find evidence that cross-selling banks tend to be localized in countries where the banking system is less concentrated but they are not characterized by lower interest margins.

Notes

¹See Allen and Santomero (2001).

²Spain, United Kingdom, Italy, Germany, France, Netherlands, Sweden, Norway, Belgium, Finland and Denmark (Bolt and Humphrey, 2008).

³See Allen and Santomero (2001) and DeYoung and Rice (2004).

⁴RELPROF is the ratio between the profit factor (1 plus the profit to asset ratio of each bank) and the average profit factor in each bank assets class (banks having negative profit rates have profit factors less than 1). We used five asset classes: less than 30 billion dollars, from 30 to 50 billions, from 50 to 100 billions, from 100 to 250 billions and more than 250 billions.

⁵This result induces to argue that INTDEP might not be considered a good proxy for the interest rate paid by the bank to depositors in our sample.

⁶Cosci et al. (2009) demonstrated that cross-selling banks tend to reduce their optimal investment in the screening activity and find evidence on a sample of European banks that, consistently with this theoretic result, cross-selling banks are characterized by higher default rates on loans.