Risks outweigh rewards for very large EU bank mergers

Abstract

Significance The 2008-09 financial crisis led to consolidation of the EU banking sector through mergers and acquisitions (M&As) of mostly domestic banks. A few EU countries have highly concentrated banking sectors, but most do not, including Germany, the least concentrated in the EU. A prime motive for merging Deutsche and Commerzbank, the country’s first and second largest banks, was that Germany’s network of exporters requires access to competitive financing. Impacts Defragmenting national banking markets and the drive for a European Banking Union (EBU) will encourage M&A approval. EU competition bodies are likely to thwart M&As among the eight to ten largest EU banks over systemic-risk fears. Successful M&As will need at least one of the partners to have a profitable core model; combining bad banks just makes a larger bad bank.