Economic Integration and Banking Mergers Strategies

In this work we develop a spatial model to explain local megers and acquisitions (M&As) in European retail banking systems as strategic reactions to changes in regulation and economic integration. We show that local banking concentration increases market power and contributes to build new barriers to entry. Local M&As yield positive social results in the first economic integration stages, but could damage welfare in more advenced stages in cases where they serve to safeguard price agreements in front of foreign competition. Our results seem to conform to experiences of most European banking markets during the last two decades.