Is the European banking sector entering a consolidation phase?
Yesterday's news about four Spanish banks are looking to merge as a means of cutting costs and strengthening their balance sheets has received a mixed welcome from analysts. It seems as though weakness in the Spanish banking sector has brought about this move with the aim of creating a larger more secure group. However, many people are sceptical about this move.
Despite the fact that in the eyes of many people the credit crunch is long gone and we are now entering a "more traditional" economic period there is no doubt that the European banking sector is under pressure. Over the last few days we have seen money market rates continue to creep higher and higher thereby increasing the cost of debt for banks which will ultimately increase the cost of debt for consumers and businesses. The merger, or proposed merger, of the four banking institutions in Spain is likely to be the first of a wave of consolidation in the European banking sector.
Whether or not this will spread to the UK banking sector remains to be seen as there has been consolidation in this area over the last few years. Unfortunately, one of the legacies of the credit crunch will be a very different banking sector within Europe.
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