Economic, institutional, and socio-cultural determinants of consumer credit in the context of monetary integration

We investigated the determinants of consumer credit in relation to nominal GDP in 23 EU countries using panel regressions for 1997-2014. Our contribution to existing research is evidence that both higher density of bank units and greater concentration of the banking sector lead to higher consumer lending. Our results show that the consumer credit to GDP ratio decreases when banking supervision becomes a part of a politically independent central bank. This signals that access to consumer credit is more difficult when supervision is independent from government. Finally, we find that joining the Eurozone boosts consumer lending. This result is consistent with the permanent income hypothesis, which states that households' current consumption is determined not only by their current income but also by the income that they expect to earn. Our results can be used to increase the effectiveness of macroprudential policy in avoiding consumer lending booms and ensuring financial stability.