Title: Convergence and clustering of Tier 1 capital in the European banking sector: a non-linear factor approach

Authors: Nicholas Apergis; Alexandros Gabrielsen; James E. Payne; Paolo Zagaglia

Addresses: Department of Banking and Financial Management, University of Piraeus, Karaoli and Dimitriou 80, Piraeus, ATTIKI 18534, Greece ' Cass Business School, City University, London EC1Y 8TZ, UK ' Department of Finance, College of Business, University of South Florida, USA ' Department of Economics, Università di Bologna, Strada Maggiore 45 - 40126 Bologna, Italy

Abstract: This short communication examines the convergence of the Tier 1 capital ratio in the banking sector across the EMU. The study applies the Phillips-Sul convergence and clustering algorithm for 251 European banks over annual periods from 1990 to 2010. The null hypothesis of full convergence is rejected; however, the convergence tests reveal heterogeneity in the Tier 1 capital ratio in the European banking sector, with five distinct clusters.

Keywords: Tier 1 capital ratio; Phillips-Sul club convergence method; Europe; banking sector; EMU; Economic and Monetary Union; European Union; clustering algorithms; European banks; equity capital; risk-weighted assets.

DOI: 10.1504/IJMEF.2012.048738

International Journal of Monetary Economics and Finance, 2012 Vol.5 No.2, pp.210 - 221

Published online: 28 Aug 2012 *

Full-text access for editors Full-text access for subscribers Purchase this article Comment on this article