Is there a common path for the integration of European Union banking systems?

Abstract The main objective of this research article is to explore hypothesis about the integration of the banking systems in European Union (EU). Increasing the European Union member states degree of convergence and integration is one of the major challenges faced by the European Economic and Monetary Union (EMU). The empirical analysis is based on the non-linear time-varying coefficients factor model designed by Phillips and Sul for the sample period 2007–2017. Our results indicate the rejection of the convergence hypothesis for EU banking systems. Additionally, our empirical findings reveal that there are significant differences in how European banks assess the non-financial sector and the households sector. During the period 2011–2013, which is a period coinciding with the most severe episodes of the sovereign debt crisis, the dispersion between trajectories increases, involving a segmentation of interest rates, and this leads to the conclusion that the integration of EU banking systems has been negatively influenced by the sovereign debt crisis. The results of the empirical study also suggested that for most clusters, the convergence speed is relative, which does not lead to an absolute integration in the long run