European banks: The silent (r)evolution 

Consolidation has led to bigger banks with higher market shares, enabling them to take advantage of economies of scale, says Schildbach. The rapid internationalisation of European banks has enabled poorly performing domestic banks to seek new sources of growth within Europe and the USA as well as other emerging markets, he adds. 

The convergence of bank and capital market-based fiscal practices has led to progress in the management of credit risk, claims Schildbach. The break-up of the value chain (deconstruction) coupled with rising specialisation allows banks to benefit from economies of scale and gives them more flexibility in accommodating modifications to demand and competition, he adds. 

The integration of European financial markets will benefit consumers and act as an incentive for banks to review their range of services and focus on their advantages, suggests the author. 

Thus, despite a "moderate reversal" of European financial markets due to the credit crunch, Europe's banks have "achieved substantial improvements regarding their profitability and efficiency levels" over the last 20 years, says Schildbach, citing the following main reasons for this: 

• Banks have grown and have been able to take advantage of economies of scale. 
• Mergers and acquisitions have accompanied growth, thus substantially reducing the number of banks which now own "higher market shares of the remaining institutions". 
• Banks have become more international – by expanding within Europe and beyond – with most of the revenue coming from outside of their domestic market.

Meanwhile, Schildbach identifies new trends which he expects will continue in coming years: 

• Europe's banks are moving away from out-and-out balance sheet-based banking to a more vigorous approach to credit risk management known as the 'originate and distribute' model. 
• Banks have become more streamlined in their approaches and are thus realising the gains derived from specialisation.

He concludes that the financial turmoil of recent months "will reduce revenues from securitisation for a number of years" but predicts that banks' sphere of responsibility will move from asset intermediation to risk intermediation.