The European banking industry is in a state of turmoil. The pace of mergers and acquisitions has accelerated across different banking sectors and within the same sector. At the same time, the demise of banks already in trouble has accelerated. While it is helpful to examine the U.S. experience in recent decades, the European situation is complicated by the presence of ‘nationally segmented’ markets.
This report first analyzes what lies behind the historic segmentation of EU financial markets because a clear view about these issues is needed to predict the changes that EMU will bring about. The Monetary Union confronts these changes with no clear strategy for regulation and prudential supervision and the ECB claims it will not be involved in those activities–they will remain the responsibility of national governments and national central banks. The authors examine the policy implications of these changes and propose measures to address the problems that may be encountered.