Deregulation and Convergence of Banking: The EU Experience

In the last two decades, the European Union has undergone a major reduction in banking regulation. This paper investigates whether this deregulatory process was associated with increasing similarity, or convergence, of banking industries across the European Union. It reports that the deregulation at the national level and the opening of banking markets to international competition led to convergence, or greater similarity, of the banking industries’ main indicators of bank profitability or earning patterns, but not necessarily their asset-liability management practices. Overall, the deregulatory process appears to explain most of the changes that occurred in the dispersion of banking structure across the European Union.