The decline in the number of credit institutions is mainly the result of mergers among savings and cooperative banks, which epitomise what are known as “consolidating” or “defensive” mergers, aimed at cutting costs and possibly also at diversifying risks. So far, this consolidation process has taken place mainly within national boundaries, with the possible exception of some mergers in the Benelux and Nordic countries. The preference for domestic mergers, as opposed to cross-border mergers, may be explained by the fact that the relevant market for retail services is still national rather than pan-European in character. Furthermore, the scope for cost cutting appears to be larger if the activities of the institutions merging overlap, although there is no particularly strong empirical evidence of this as yet. The fact that cultural “proximity”, notably in the corporate style of governance and management, is traditionally seen as a key factor in the success of mergers may also help to explain the limited cross-border merger activity. It has to be said that although most mergers have been domestic, they have often been instigated and influenced by area-wide market developments and the integration of financial markets following the introduction of the euro. As of today, there is no doubt that the introduction of the euro has fostered the internationalisation of banking activities. In particular, the rapid integration of the wholesale banking and capital markets, as well as large-value payment systems, has already produced more and new kinds of links among banks.
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.