The Euro Zone's Fragmented Banking Industry
- Supporters for more consolidation in the euro zone's banking sector have been watching Spanish lender BBVA's hostile bid for Sabadell, alongside comments from some supervisors and lawmakers supporting the idea of more tie-ups. Regulators are keen for more consolidation - both within and across countries - because they believe fewer, stronger lenders will boost the economy and enable euro area banks to compete more effectively with larger, more profitable rivals in the United States and Asia.
- Yet, big banking takeovers have been rare since the 2008-09 global financial crisis, with most dealmaking forged out of necessity. The banking industry concentration, as measured by the share of bank assets accounted for by the largest five credit institutions, varies widely across the bloc.
- In Greece, Cyprus and the Baltic states, that share ranged between 88% and 95% in 2023, according to data from the European Central Bank analysed by Reuters. Several of these countries have also seen the biggest increase in concentration in the past decade, as financial crises forced lenders to acquire weaker rivals.
- In Spain, where the top five credit institutions' 69% share of bank assets is close to the euro zone average, the number of banks has fallen to 10 from 55 before the global financial crisis. Germany, by contrast, has hundreds of banks, according to data from its central bank.
- Euro zone banking concentration by country is, on average, higher than in the U.S., where the five biggest banks' assets share was 50% in 2021, data published by the Federal Reserve Bank of St Louis show. However, fragmentation is much higher in some euro zone countries, especially in bigger and richer economies like powerhouses France and Germany, where the top five institutions' asset share is 45% and 34%, respectively, the ECB data show. These countries have seen the least consolidation in the last decade, too.
- This is partly because they have avoided the crises that force regulators and lawmakers to dismantle the hurdles usually preventing domestic banking mergers. Impediments to cross-border deals are even greater and include differing regulations and labour laws and the lack of a euro zone-wide deposit insurance scheme and politics.
(Source: Reuters)