Changes in the Size and Structure of the European Union Banking Sector – The Role of Competition between Banks

The aim of this paper is to present the changes in the banking sectors of European Union (EU) countries both before the last global financial crisis and during the crisis, with particular emphasis on the change in concentration and competition, in an attempt to determine the relationship between competition, concentration, and risk-taking by banks. This paper also addresses the current problems in the banking sector of the EU (i.e., banks are too-big-to-fail (TBTF)), and attempts to solving these problems within the framework of regulatory initiatives. The empirical results based on panel data analysis find that increasing the concentration and size of the banking sectors within EU-27 from the period 2006-2010 had a negative impact on financial stability. The results for competition are unambiguous, as competition had a positive impact on financial stability, mainly within the EU-12 banking sectors