"Does Size Matter?" Financial Restructuring Under Emu
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Philip Molyneux

Abstract
This paper examines the main structural and performance features of European banking. It shows that while banking markets have become increasingly concentrated and bank numbers have fallen, competition appears to have intensified. Given the large number of banks and branches in many countries there still remain indicators of excess capacity in the system and that the consolidation trend, especially with the advent of EMU, will continue. A major theme of this paper is that market concentration and bank size are poor indicators of market power. There is also increasing evidence that large European banks have efficiency advantages over their smaller counterparts. They also appear to benefit more from technological progress. Most of the available evidence points to increasing concentration across European banking markets. However, there is little evidence to suggest that market structure and bank size strongly influence performance. Important strategic drivers, such as deregulation and technological change, are transforming the economics of the industry, lowering entry barriers and making markets more contestable. Given the increasingly wide range of financial service providers, the larger 'domestic' market created by EMU and the current competitive environment, concentration in domestic commercial banking markets is becoming a less relevant antitrust issue.

JEL classification: G21, G34, G34

Keywords: scale economies, financial integration, European banking, EMU