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Market Structure, Efficiency and Rising Consolidation of the Banking Industry in the Euro Area
Author(s) -
Kapopoulos Panayotis,
Siokis Fotios
Publication year - 2005
Publication title -
bulletin of economic research
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.227
H-Index - 29
eISSN - 1467-8586
pISSN - 0307-3378
DOI - 10.1111/j.1467-8586.2005.00215.x
Subject(s) - disintermediation , consolidation (business) , deregulation , economics , profitability index , monetary policy , restructuring , market power , currency , barriers to entry , market structure , economies of scope , economies of scale , industrial organization , business , financial system , monetary economics , market economy , finance , microeconomics , monopoly
Abstract Four factors are fundamentally altering the financial landscape in the Euro Area: deregulation, further disintermediation provoked by the common currency and common monetary policy, technological advances and increased competition from non‐bank intermediaries. Faced with the combined pressures of these factors, banks are devising strategies to do business in this new environment. They respond by attempting to improve their efficiency and/or market power through consolidation and balance sheet restructuring. This article examines whether the ongoing process of consolidation should be rationalized on the basis of the benefits of economies of scale and scope or to the attempt of banks to tackle excess capacity problems. Empirical findings reveal a significant effect of efficiency measures on banking profitability indices. Also, we argue that further disintermediation caused by common currency and common monetary policy poses a threat to banks' profitability. Finally, these results have some implications for merger and antitrust policy as well as for supervisory and regulatory practices.