Cross-border mergers, while less likely to produce cost savings or economies of scale, would have an additional benefit of improved risk diversification and would thus result in more resilient profitability. To this end, policy-makers may need to remove obstacles to cross-border mergers and acquisitions, promote further integration and pursue the banking union agenda. It is also worth recalling the good news.
Banks have noticeably improved their resilience over the past few years. This largely reflects the new regulatory framework. They now need to hold more and higher-quality regulatory capital and they must maintain liquidity buffers. They also need to finance themselves through stable funding sources. And they have to plan for their potential resolution and issue debt instruments that can be bailed in.