This paper investigates the interest rate pass-through in the euro-zone’s retail banking markets by differentiating between expected and unexpected monetary policy impulses. The paper introduces interest futures as measures of expected interest rates into pass-through studies. By allowing various specifications of the pass-through process, including asymmetric adjustment, we find a faster pass-through in loan markets when interest rate changes are correctly anticipated. In contrast, deposit markets are found to be more rigid. Overall, our results suggest that a well-communicated monetary policy is important for a speedier and a more homogenous pass-through but may also be complemented by competition policies.

Motivated by recent regulatory changes, this study investigates the degree of integration in retail lending in six core European Union (EU) countries using co-integration methodology which allows to investigate the presence and effects of structural breaks. While in the pre-break period we could detect integration to a limited degree, the evidence for integration weakened in the post-1992 period. This could however reflect a convergence process, particularly with respect to spreads. This result is clearly a regional, not a global phenomenon. As European lending rates are not yet fully integrated, the still segmented financial markets pose a challenge for a unified monetary policy.

We investigate the impact of cultural borders on the geography of international finance during stable and crises times. We employ a unique data set that focuses on Eurozone cross-border depositing during the 1999–2011 period in a gravity-model framework. We find that cultural distance limits international financial integration over and above what can be expected from economic trade and transaction costs. While we provide evidence that cultural borders lost influence during a “Europhoria” phase after the introduction of Euro notes in 2002, our findings indicate that cultural borders resurge during the 2007/2008 financial crisis and severely limit financial integration.