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.
