These include higher diversification of risks, which can improve resilience and lead to better risk-sharing across countries. To date, cross-border activity in the banking sector remains fairly limited in the euro area.4 Banking sector integration also matters for the good functioning of the monetary union, as it fosters the smooth transmission of monetary policy throughout the euro area economy.
Despite these benefits, progress in banking market integration in Europe has been slow, particularly in retail banking. For example, in 2017 cross-border loans amounted to only 8.6% of total loans to firms and a negligible 0.9% of loans to households.5 It is true that cultural, legal and language barriers may make it difficult to directly provide crossborder banking services.