The Forging of a Common Market: Retail Banking Integration in the Nordic and Baltic Countries

University essay from Handelshögskolan i Stockholm/Institutionen för finansiell ekonomi

Abstract: In this thesis we employ a partial adjustment model to quantify the level of integration in the Nordic and Baltic retail banking market. Based on assumptions regarding market contestability and takeover threat we are able to use convergence in profitability as a proxy for integration. Our results clearly show that the overall level of integration is high, but that there are differences across bank types, countries and time periods. As expected, convergence is generally higher for listed banks than savings banks and government sponsored banks. Removing all observations from 2008 accentuates this difference as the financial crisis seems to exaggerate the rate of convergence for savings banks and government sponsored banks, especially “from below”. The high level of integration indicates that the Nordic and Baltic countries are a single retail banking market, which has major implications for bank strategy and public policy.

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