Integration and competition in the European financial markets

Financial integration in Europe should affect the competition between markets and intermediaries and generate a convergence of both interest rates and margins among different countries. This paper analyzes both the evolution of the convergence in interest rates and the level of competition and its inequalities among the European banking systems for the period 1993−2001. The inequality index used—the Theil index—allows us to break down the inequalities into a country and a specialization effect. If the former effect dominates it would mean that national banking markets are segmented due to the existence of obstacles or barriers to integration. On the other hand, dominance of the latter effect would be related to the different level of competition depending on the type of banking specialization.