The efficiency and stability of the banking system would benefit from further consolidation which – as several policymakers have noted – should be driven by market forces, with each proposed transaction assessed individually. Some measures of bank efficiency lag behind those of other advanced economies too (see Chart B.1, panel b). Despite this, the sector continues to struggle with weak profitability and excess capacity, with too many undersized banks and a costly physical banking infrastructure. The euro area banking market has become increasingly concentrated (see Chart B.1, panel a), and a third of its banking groups – mainly the smallest banks – have disappeared since the global financial crisis. 1 Introductionīank mergers and acquisitions are often regarded as an option for reducing overcapacity and weak profitability in the euro area banking sector. Such transactions tend to be followed by a stronger improvement in profitability than domestic mergers, although this effect has diminished since the global financial crisis. Cross-border M&A transactions have been concentrated within a few small groups of euro area countries, supported by prior financial links and geographical proximity. Improved post-transaction profitability can be linked to targets’ lower cost efficiency, liquidity and capitalisation. Consolidation seems on average to have had a moderately positive impact on the profitability of the banks involved, although high levels of variance reveal the presence of large execution and design risks amid low overall returns on capital in the banking sector. Most M&A activity has had a domestic focus and has involved smaller targets, with larger and sounder acquirers acting as consolidators. Published as part of the Financial Stability Review, November 2021.īank mergers and acquisitions (M&As) have been subdued in the euro area since the global financial crisis. Prepared by Isabel Figueiras, Sándor Gardó, Maciej Grodzicki, Benjamin Klaus, Laura Lebastard, Barbara Meller and Wouter Wakker Bank mergers and acquisitions in the euro area: drivers and implications for bank performance
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