The increased number of wealthy individuals has changed the demand for financial services. Traditional banking services or products, while maintaining a strong position in liquidity provision, are not adequate for people interested in diversification and maximisation of returns subject to risks in the context of long-term investments. The associated rise in demand for securities has led to an increasing need for brokerage, fund management and consultancy services. While there are new providers for these services, banks could remain at the centre stage, albeit with their services oriented more towards asset management. In addition to the overall increase in the wealth of individuals, the composition of wealth has shifted towards a greater emphasis on wealth in the form of financial assets. This is manifest in the increase in the relative market value of stock exchanges, which is clearly visible in most euro area countries. The increase in financial wealth relates closely to the shift towards a market-oriented financial system and also to the increased importance of institutional investors. BIS Review 83/2000  2  All the developments I have discussed so far underlie recent changes in the structure of the financial system. Financial systems in the euro area could be departing from a bank-dominated structure, becoming more market-oriented or even securitised. An indicator for this development is the declining share of deposits in households’ portfolios. Meanwhile, aided by technology, the disintermediation process on the assets side is under way in a number of countries, even though the process has been quite slow.
By structural change, I mean not only domestic consolidation, but also increased cross-border cooperation and mergers. In short, the euro area banking sector is expected to look and behave more like the banking sector of a single economy in the future. Economies of scale and scope may have been changing in different areas of banking and may even have taken different directions. However, the general picture is that the banking industry needs to be in a position to adjust to a new reality. Indeed, since the introduction of the euro, a number of bank mergers in the euro area, including mergers between relatively large institutions, have been announced. Such “high-profile” mergers are likely to contribute towards an acceleration of the pace of both the consolidation and integration process of the banking systems in the euro area. The recent pattern of consolidation constitutes a continuation of a longer-term trend in the European banking industry, as is highlighted by the large decline in the number of credit institutions in the euro area countries over the past decade or so. In the mid-1980s, there were more than 11,000 credit  3  BIS Review 83/2000  institutions in the euro area countries, compared with around 7,500 now. This reflects a decrease of 3,500 credit institutions over 15 years, or an average annual decrease of around 230 institutions. The changeover to the single currency seems to have intensified the consolidation trend in the euro area banking sector.