LAUSR

Using industry data from Eurostat and applying the Rajan-Zingales methodology, we investigate the short-run real growth effects of foreign bank presence in the European Union. Our sample stretches from 2000 until 2012 and includes the phase of rapid financial integration before the global financial crisis as well as the following phase of financial fragmentation and bank deleveraging. We find evidence that foreign bank presence had a more than four times stronger growth effect during the crisis than in normal times. Growth effects are also stronger in times of domestic bank deleveraging. In light of these results, we conclude that a reintegration of the European banking sector is an important building block of future growth perspectives in the European Union.