European financial systems through the crisis: Patterns and convergence

We investigate the financial crisis as a cut-off point in EU financial systems' evolution and assess its effects on cross-country convergence patterns. Before the crisis, we observe a rise in the centrality of the financial sector, driven by an upward convergent pattern of bank credit. This inflated leverage ratios across all economic sectors, and a catch-up phenomenon is retrieved in the leveraging of the real sector. The crisis caused a general deleveraging across all economic sectors, with a downward convergence pattern characterizing the financial sector, and triggered an upward convergent pattern in the level of insurance products in households' portfolios.