The New Banking Union Landscape in Europe: Consolidation Ahead?

The establishment of the Banking Union (B.U.) creates a large banking market comparable to that of the U.S. This paper calculates the market share of the top 20 banks in the new B.U. France appears to take a prominent place with 5 banks in the top 10, followed by Germany, the Netherlands and Italy. Earlier integration episodes did not lead to cross-border consolidation in Europe. In contrast, the lifting of interstate banking restrictions caused a cross-state merger wave cumulating in large U.S.-wide banks. This paper investigates whether cross-border consolidation can be expected within the B.U. The answer is yes over time, but not yet as subdued growth, lingering influence of national supervisors and cultural differences may hamper cross-border mergers in the short run. Over time, the B.U. will become an integrated market, where banks can manage their balance sheet at the aggregate B.U. level and the European Central Bank (ECB) conducts supervision with a European perspective.

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