Banking Integration in Europe: On the Road to the Banking Union

The banking sector is a central driver of financial integration in Europe through cross-border interbank lending and securities market, in which banks are major buyers of securities issued by other banks and governments. At the same time, the integration of retail banking is somewhat limited. The next announced step in the European Union financial integration the creation of the banking union - would probably have a significant impact on the European banking industry. To provide a complex prognosis on the possible outcome of the decision, we analyze the current state and direction of the banking integration in Europe and summarize what we know from the literature about its effects on financial stability.