Bank Consolidation and Its Effect on Market Competition

Abstract

This study investigates the impact of bank consolidation on market competition by analyzing mergers and acquisitions across global banking systems from 2018 to 2024 using a mixed-methods approach. Quantitative indicators—including the Herfindahl-Hirschman Index (HHI), Lerner Index, Return on Assets (ROA), and Non-Performing Loan (NPL) ratios—were examined alongside qualitative evidence from regulatory documents, policy reviews, and antitrust debates. Results indicate that consolidation consistently increases market concentration, as reflected in rising HHI values, and strengthens market power, as shown by higher Lerner Index scores, while also reducing consumer welfare by lowering deposit rates, raising service fees, and accelerating branch closures in rural and low-income areas. Profitability improved in the short run post-merger but often leveled off or declined in later years, suggesting that efficiency gains are not sustainable over time. Regional analysis highlights divergent outcomes, with European consolidation driven by competitiveness and technological imperatives, U.S. consolidation influenced by shifting antitrust frameworks, and emerging markets displaying context-specific effects on capital structure and access to credit. Qualitative findings reinforce these patterns, showing that consolidation narratives often prioritize efficiency and stability but neglect equity and inclusion. Overall, the study concludes that while consolidation is an inevitable trajectory of modern banking systems, its competitive and social consequences are highly contingent on regulatory environments. Strong antitrust oversight, inclusive policies, and safeguards against excessive market dominance are therefore essential to ensure that consolidation fosters efficiency without compromising consumer welfare and financial stability.