Many consider the lack of cross-border mergers as proof that much remains to be done in terms of market integration and diversification. In any event, scant cross-border consolidation, particularly in a setting of clear overcapacity of the European banking sector, is symptomatic. On this matter, the ECB, in its latest stability report7, published a study on the degree of overcapacity of the sector in Europe and the potential implications for bank business. In keeping with the conclusions of the study, excess capacity may lead to operating below margin in the face of heightened competition. That would preclude making the necessary investments for the future of banks and their adaptation to new technologies and new operators (e.g. in systems), creating “zombie”-like banks that weigh down even further on the sector’s profitability. The study details those banks with a return on equity (RoE) that is lower than the median of 6% over three years, but the most worrying group would be that of banks with an RoE of less than 3%, no less than around 25% of the total. The study concludes with the need to address restructuring and mergers, showing a clear preference for cross-border as opposed to national mergers. On the ever-controversial matter of mergers, I have stated on several occasions that our role as supervisors is not to decide which mergers are desirable and which not.
For  BIS Review 36/2010  11  instance, the Committee thought that the chance that inflation would be 2% or higher in 2011Q1 was between 15% and 20%. We can once again use the February forecast to highlight a few of the key messages that the MPC wanted to communicate. In the early part of the forecast period, the probability of inflation being above the target is very high. This is because the data for inflation are well above target at present, and also because the fan chart here is relatively narrow. But the projection for inflation falls over the forecast period. This implies a fall in the probability of inflation being above target. Towards the final part of the projection, the probability of inflation being above the target rises back to being broadly one half. This chart emphasises that, in spite of the most likely outcome for inflation being below target, the nature of the distribution of risks implies that the probability of exceeding the target is about one in two. We can also combine the usual top-down fan chart with the information in the cross-sectional densities to produce a 3D fan chart [Slide 20]. The particular advantage of this chart is that it shows how the overall density changes over time. For instance, when the distribution is very narrow, such as at the start of the forecast period, the probability density at the centre of the fan is higher, simply because the MPC is more confident about its central forecast here.