Another avenue towards improving efficiencies and eliminating redundancies is through banking sector consolidation via mergers and acquisitions (M&A). Well-managed M&As can deliver important cost synergies (e.g. lower administrative expenses, branch rationalisation) as well as revenue synergies (e.g. lower funding costs of the merged unit) that might contribute to improving the banking sector’s profitability prospects.
M&A activity has, however, remained subdued in recent years, in particular cross-border M&As. In the ECB’s latest Financial Integration Report, we document that M&A activity in the euro area banking sector has been on a declining trend since 2000, and in particular in the aftermath of the crisis.