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The European banking industry experienced an era of profound restructuring in the 1990s, manifested by an unprecedented wave of mergers and acquisitions (M&As). The creation of banking giants on the domestic scale, the development of cross-border and cross-sectoral transactions and thus the emergence of a few large pan-European financial groups have been the principal features of this latest consolidation wave in banking. Financial globalisation, deregulation and market integration, the adoption of a single currency, technological and financial advances and shareholder value have been the main driving forces behind the wave of M&As over the past few years. Yet, despite the slowdown of the M&A activity since 2001 due to the world economic downturn and the collapse of financial markets, banking consolidation in the European Union will continue. Indeed, the progress made in the Financial Services Action Plan (FSAP) towards the integration of European financial markets including the new rules-setting envisaged by the new capital adequacy directive 3 will be a real impetus to further banking restructuring.

Against this background and after providing an economic explanation of the recent banking consolidation wave, this report raises two fundamental questions: If the race to a larger scale leads to the homogenisation of banking behaviour and to the emergence of a European banking model, what prospects remain for small- and medium-sized banks? And if large pan-European financial groups dominate the financial scene, what will be the response of the supervisory authorities to ensure the stability of the European financial system?

Publisher: Centre for European Policy Studies

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