EU predicts fewer, larger eurozone banks

(BRUSSELS) - The financial crisis has had limited impact on an existing process of consolidation among banks within the 16 countries that use the euro currency, the European Commission said on Monday.

"The findings show that banks in the euro area have become fewer, larger and more international. And this trend is likely to persist," it said in a report that looked into the question of banks that were "too big to fail."

Three out of every 10 banks across the eurozone have already disappeared since the single currency became a reality a decade ago.

This concentration of market power has led to policymakers judging certain institutions too important to let them exit the market.

Subsequently, however, EU competition enforcers have acted to ensure banks and governments return a degree of normality to the market, ordering disposals of as much as half of assets in certain cases.

"Over the medium term, financial integration in the EU, and beyond, is likely to proceed as the underlying economic driving forces behind this trend remain intact," the report added.

"Diversification is in general beneficial for reducing overall risk, and as such support financial stability even in a synchronised downturn like the present one.

"Restructuring could even strengthen the integration of banking markets as cross-border banking groups may try to penetrate new markets by acquiring divested entities in target markets," it added.

In order not to put brakes on a process they see as driven by pre-crisis forces, the authors warned of dangers in allowing new EU-wide supervision of the banking sector to become too all-encompassing.

"If regulation is taken too far, there is a risk that this increased burden could have negative implications for the growth potential of the euro-area economy," they wrote.