Banking competition in the euro area

Empirical evidence from the euro area indicates that retail interest rates tend to adjust slowly and incompletely to changes in market interest rates. Responses also seem to be asymmetric: deposit rates display rigidity when market rates rise, but flexibility when they fall. In addition, the available evidence for the euro area banking sector suggests there are significant differences across countries in the way banks adjust their interest rates in response to changes in corresponding market rates. The sensitivity of deposit interest rates with respect to changes in market rates can be used as an indicator for the level of competition in banking.