Financial Crisis Might Boost the Consolidation of the Banking Sector

Since the international financial market crisis has broken out, the impact of the state on the financial sector increases. Especially the collapse of the US investment bank Lehman Brothers in September 2008 caused governments all over the world to tighten their grip on banks and insurance companies. In the period from October 2008 to March 2009 alone, governments contributed around 200 billion euro to investments made in the financial sector. This is the result of an analysis of worldwide mergers and acquisitions in the financial sector carried out by the Centre for European Economic Research and the Bureau van Dijk Electronic Publishing (BvDEP).

Especially in the USA, of all countries the one most associated with capitalism, the influence of the state on the financial sector has clearly increased over the past few months. Overall, the US government has invested more than 142 billion euro in banks and insurance companies since September 2008. Measured by the transaction volume, the US government has been involved in around 70 percent of state transactions worldwide since 2007. The largest single transaction undertaken by the US government was the investment in the financial giant AIG. Around 31 billion euro were spent on the acquisition of the troubled insurance company.

By comparison, all other countries clearly featured fewer transactions with state investments. Western European governments held 22 percent of all transactions in the financial market of their respective country. Above all the governments in the Netherlands and in Belgium highly contributed to investments. The bail-out of the troubled financial institution Fortis absorbed billions.

However, the crisis might give the consolidation of the banking landscape in Europe a proper boost. In the UK, for instance, HBOS was acquisited by Lloyds TSB. In Belgium, the government sold 75 percent of its share at Fortis to the French BNP Paribas, which means that Fortis is about to be broken. In Germany, the “Landesbanken” (Federal State Banks) are exposed to structural changes. Therefore, the financial market crisis might promote the consolidation of the German banking sector, which is considered necessary by experts. "As a result, the credit institutions might profit from the crisis and become stronger and more efficient in the long run,” says Matthias Köhler, researcher in the department “International Finance and Financial Management" at the ZEW.

Contact

Matthias Köhler, E-Mail: koehler@zew.de