Calls for banking consolidation in the European Union (EU) are growing louder, and have once again received attention at the World Economic Forum in Davos. As European banks continue to struggle to keep up with the performance of their US peers, the six biggest US banks posted their first $100 billion year in 2018. Bank CEOs who debated the topic in Davos thought it was clear that size matters, and that cross-border consolidation is a promising avenue. (There was even a suggestion in Davos that a wave of consolidation might take place among US banks before European banks make any headway - in which case European banks could find it even harder to keep up with their US peers).

So why, despite banks’ senior management and supervisors appearing to agree on the need to pursue cross-border consolidation, has there been little action in the EU?

Part of the answer lies in structural impediments within the EU that make cross-border consolidation difficult. The single jurisdiction within the Eurozone that the Banking Union sought to establish remains incomplete. There is fragmentation in terms of the rulebook for banks because of differences in how EU directives are transposed into national law, and because of national laws and discretions. These impediments can, for example, pose significant challenges to the economics and risks of an M&A transaction.

A natural question then might be what supervisors – or legislators – can do to reduce or remove some of these impediments.