The resurgence of cultural borders during the financial crisis: The changing geography of Eurozone cross-border depositing

• We analyze Eurozone cross-border depositing during the 1999–2011 period in a gravity-model framework.
• Cultural differences between countries act as cultural borders to international finance thereby limiting financial integration.
• Confidence in the Euro helped to overcome cultural borders in the Eurozone.
• Cultural borders resurged during the 2007/2008 financial crisis.

We investigate the impact of cultural borders on the geography of international finance during stable and crises times. We employ a unique data set that focuses on Eurozone cross-border depositing during the 1999–2011 period in a gravity-model framework. We find that cultural distance limits international financial integration over and above what can be expected from economic trade and transaction costs. While we provide evidence that cultural borders lost influence during a “Europhoria” phase after the introduction of Euro notes in 2002, our findings indicate that cultural borders resurge during the 2007/2008 financial crisis and severely limit financial integration.