Scale and scope economies in the European banking systems

The increasing competition induced by the European integration is leading to an intense process of consolidation among European banks, very similar to that, which occurred in the US banking industry in the 1980s. In this paper, we test if cost improvements in output efficiency are likely to emerge from the ongoing process and to derive some implications for the future market structure. Our results support the view that recent regulatory changes and progresses in technology have contributed to raising the optimal scale. We show that mergers should be oriented to increase bank scale for small banks and to expand into new product lines for large banks.