Although progress has been made on this front, with 25% fewer credit institutions in the euro area now than in 2008,1 there is considerable scope for consolidation within some countries and across borders. The creation of Europe-wide banking groups would help break the bank-sovereign nexus and the consequent fragmentation of bank lending along national lines and through national interference that so marked the crisis.
Credit provision should then be able to continue in a smooth fashion in future downturns, mitigating, rather than exacerbating, asymmetric shocks. Greater efforts should be made to resolve the overhang of NPLs. I see a number of avenues that are worth exploring. Banks themselves should make efforts to fully provision the true expected loss from NPLs.