According to Matthias Rumpf, an economist at the European Central Bank, cross-border banking is on the rise in the eurozone. In a blog post on October 24, 2024, Rumpf detailed that households are increasingly doing business with banks from other euro area countries, indicating a shift in trust in foreign financial institutions. . Historically, individuals have been reluctant to park their savings outside their home country, but recent data shows a notable shift in this behavior.
Rumpf’s analysis reveals that households are making significant inroads into cross-border banking, with total cross-border deposits reaching approximately €151 billion in August 2024. This figure represents around 1.6% of all household deposits in euro area banks, a marked increase from €95 billion (1.2%) at the beginning of 2020. Mr. Rumpf emphasized that although the current proportion of cross-border deposits is still relatively low, it is likely to increase in the future. This trajectory demonstrated the possibility of a more integrated banking and capital market union in the future.
Rumpf explained that one of the benefits of the euro area monetary union is that it provides access to financial services across member states. Many households sought these services for reasons such as higher deposit interest rates and the availability of more convenient banking products. However, he noted that foreign commercial banks have historically had low usage rates among nationals, with the cross-border share of total deposits declining until 2005 and stagnating at a low level until 2014. He pointed out that households have recently become increasingly dependent on other euro banks. As a result, cross-border banking has grown significantly.
ECB data suggests a particularly large increase in cross-border deposits occurred between mid-2022 and September 2023, coinciding with the ECB’s decision to raise interest rates. Rumpf reasoned that this indicates that households are likely pursuing a better savings situation. Nevertheless, the early onset of this trend suggests that other influences were also at work, such as increased cross-border marketing by online banks.
Countries such as France, Luxembourg, Germany and Italy emerged as the largest recipients of cross-border deposits from other euro area countries. In particular, Italy has experienced the most significant growth in absolute terms over the past five years, with deposits from foreign sources almost doubling since 2022.
Mr. Rumpf highlighted that Luxembourg topped the list with the highest share of deposits from other euro area countries, amounting to an impressive 37%. This ratio is significantly higher than other countries such as Estonia’s 20%, Lithuania’s 16%, Malta’s 10% and Latvia’s 6%, making Luxembourg the dominant player in attracting foreign deposits compared to its smaller Eurozone counterpart. It became clear that they occupied a prestigious position. Conversely, the opposite trend was observed in Cyprus, Greece and Slovenia.
Rumpf’s analysis also revealed that balance sheet data can be used to value the deposits countries hold overseas. In the second quarter of 2024, German households accounted for €51.5 billion, more than a third of the euro area’s cross-border deposits, followed by France with €15.8 billion and the Netherlands with €13.7 billion. Both Germany and the Netherlands also contributed significantly to the overall increase in cross-border deposits since the beginning of 2020.
Although the share of deposits from non-domestic households in the euro area remains small, it has increased significantly in recent years. Rumpf suggested that higher interest rates and interest rate differentials between countries likely contributed to this trend, but did not explain the overall trend. He argued that other factors, such as digitalization and online banking services, may also play an important role in this evolving landscape of cross-border banking.
