Cross-border deposits in the Eurozone have increased substantially, reaching 151 billion euros by August 2024. This marks a notable rise from 95 billion euros in early 2020, despite still representing a small share (1.6%) of total household deposits in the region. The increase suggests a greater openness toward foreign banks, with households actively seeking banking services from other Eurozone countries. This shift indicates an evolving trend of trust and confidence in external financial institutions, as individuals seek better financial services, including higher interest rates on deposits.
The Role of Luxembourg in Cross-Border Deposits
Luxembourg stands out as the top choice for foreign deposits, with a remarkable 37% share of all non-resident household deposits in the Eurozone. This figure far surpasses countries like Estonia (20%), Lithuania (16%), Malta (10%), and Latvia (6%), underlining Luxembourg’s significant position in attracting cross-border funds.
Since 2022, the trend has been further fueled by the European Central Bank's (ECB) interest rate hikes, as households looked for better savings conditions. The role of online banking, with its cross-border marketing efforts, has also contributed to the rise in deposits. Countries such as France, Italy, and Germany have become key beneficiaries of these cross-border flows, with Italy seeing the largest growth in foreign deposits.
Factors Driving the Trend
According to Matthias Rumpf, economist at the European Central Bank, this shift toward foreign deposits is a result of various factors. Not only do households seek more favorable interest rates, but technological advancements and the ease of using online banking platforms have played a significant role in encouraging cross-border financial engagement. Despite the relative size of cross-border deposits still being small, the increasing numbers point towards a more integrated banking system in the future.
Luxembourg's dominance in attracting non-resident deposits showcases the evolving landscape of cross-border banking within the Eurozone. While the share of such deposits remains modest, the rising trend highlights a growing trust in foreign financial institutions, likely driven by interest rate changes, online banking services, and broader financial integration within the region.
