The Euro and cross-border banking: evidence from bilateral data

Has the introduction of the Euro fostered financial integration in Europe? We answer this question using a data set of banks' bilateral foreign assets and liabilities provided by the Bank for International Settlements. The data cover the pre-Euro period (1995-1998) and the post-Euro period (1999-2005). We use information from 10 OECD reporting countries and all OECD recipient countries. Gravity regressions show a positive and significant impact of the Euro on bilateral financial linkages. This effect is stronger and more robust for banks' foreign assets than for their foreign liabilities. Keywords: International banking, gravity models, Euro area JEL Classifications: F32, F42, F34
MOTIVATION Has the Euro promoted financial integration in Europe? (1) This question has been addressed in a series of research papers in recent years. This literature shows that money markets [...]