engleski

Integration of Banking Sectors and Money Markets within CEE and EU-15: Cointegration Approach

The intention of this paper is to examine whether money markets and banking sector integration exist among CEE countries and EU-15 countries. In sample of CEE countries we include both selected new EU member states and candidate countries. Many studies have demonstrated that money markets of EU-15 members exhibit high degree of integration primarily due to introduction of common currency. We feel that some evidence of integration in the direction of Europe-wide money market integration, i.e. integration between CEE countries´ money markets and EU-15 money market might be expected and can be tested. Potential for money market integration between CEE and EU-15 exists due to major role of banks from EU-15 in CEE countries´ banking industries in form of their significant ownership stakes in CEE bank, major role in general of commercial banks on money markets in CEE countries, increasing level of euroization and process of CEE countries´ joining EU and EMU. Results of Johansen cointegration procedure suggest that only in case of Croatian and Bulgarian money market there is evidence of integration with EU-15 money market. Moreover, money market rate pass-trough is also found in cases where integration is found. Contrary to EU money market, national banking industries within EU-15 countries exhibit rather weak form of integration. However, we feel that integration among CEE and EU-15 banking sectors might still be present because the process of banking industry consolidation in CEE countries took place mainly through entrance of foreign (mainly EU-15) banks into national banking industries. While promoting lending boom in CEEC, this process could have facilitated integration in both deposit and credit markets in CEE countries with EU-15 countries and therefore we used cointegration tests test in order to determine degree of integration in deposit and lending markets between six CEE countries and five EU-15 countries. We also tested for Granger causality (augmented with EC term when needed) in order to detect the presence of interest rate pass-trough from EU-15 deposit and credit markets to CEE countries deposit and credit markets. We find cointegration only in case of Italian and Austrian banking on EU-15 side and Croatian, Bulgarian and Polish banking on CEE side. Granger causality tests partially confirm cointegration results, but also provide evidence of interest rate pass-through from Germany and Belgium to Hungary. Czech banking seems the most segmented. Also, lending markets in CEE are much more integrated with EU-15 countries lending market when compared to deposit markets.

banking sector; money markets; financial integration; cointegration; CEE

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