Fragmentation of the European financial market and the cost of bank financing

Fragmentation of the European financial market and the cost of bank financing

Fecha: mayo 2013

Autores: Joaquín Maudos

Etiquetas: Tipos de interés, Unión Europea, Financiación de la empresa, Financiación privada, Depósitos bancarios, Coste de financiación bancaria

Spanish and International Economic & Financial Otlook, SEFO, V. 2 N.º 3

The impact of the crisis has halted the process of interest rate convergence, which had been taking place following the creation of the European Monetary Union (EMU), and ushered in a new period in which the interest rate differences between countries have widened. This trend has been exacerbated further in distressed countries after the sovereign debt crisis broke out, and in particular in the case of borrowing costs for SMEs. Currently, the cost of financing for SMEs in distressed countries is twice that in other countries, with Spanish SMEs paying 35% and 77% above Euro area and German SMEs, respectively. Deposit rate convergence has also been reversed, as banks’ reliance on retail deposits for funding has driven up financing costs, again particularly for the distressed countries. These higher costs, ultimately passed on to consumers, are adding an additional drag on growth. Examining the case of Spain, we can clearly observe the additional burden of this market fragmentation on businesses and households. In this context, a genuine banking union is the only way to reduce the huge differences currently existing between the borrowing costs paid in different countries of the Euro area.

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