The purpose of this study is to investigate the extent of bank industry consolidation across the European Union, the patterns that have emerged from the mergers and acquisitions (M&As) and the regulatory framework that underpins these processes. It aims to identify the key challenges that have to be addressed if M&As are to expand.
The paper reviews the reasons that have led some financial institutions to merge, both domestically and cross‐border, and the developments that have taken place in the economic, legal and political environment. The paper presents an empirical analysis of bank industry M&As within the EU between 1993‐2004 and identifies possible explanations for the patterns of consolidation.
The analysis provides evidence that M&As predominantly take place at the national level and that two main strategies have emerged, namely the consolidation of commercial banking and the creation of universal banking groups.
Ten countries joined the EU in 2004 and are excluded from the analysis, due to data limitations.
More cross‐border mergers should be encouraged if EU countries are to continue to integrate their financial markets. Moreover, if universal banking groups do not succeed in exploiting the economies of scope on which they are founded, divestment of non‐core activities may follow, thus providing acquisition opportunities for others, with the resulting more focused organisations wishing to diversify geographically, via cross‐border M&A.
The study suggests that the limited cross‐border M&A activity observed may be due to the existence of non‐legislative barriers, such as internal control issues raised by geographic diversity and, more specifically, the perceived cultural barriers to pan‐European operation.
