The 15 member European Union (EU) underwent a substantial change in banking and financial structures which began in the decade of the 1990s with the initiation of single market banking in 1993 and significantly transformed the legislative and regulatory ambiance for the banking and financial markets. Then on the 4th of January 1999, arguably the most significant step in the process was taken when 11 of the 15 members came under the purview of a single currency, the euro, and started financial operations under a single central bank, the European Central Bank (ECB) (Murphy, 2000). The process of conversion to the euro was complete by 2002, and all erstwhile European currencies were replaced by euro banknotes and coins. The present endeavor aims to asses the impacts the advent of the euro has had on the banking sector itself. The introduction of the euro against the backdrop of the single market system has led to the direct effects of substantially increased merger and acquisition (M&.A) within the EU banking sector, raised transaction volumes in terms of currency, reductions in currency exchange and arbitrage, centralisation of monetary control in the hands of the ECB, interest rate convergence and substantial decrease in the banking regulations. .
The establishment of the single market program and anticipation of the advent of the single currency motivated consolidation efforts in banking firms earlier in the 1990s. The single market program by itself led to increased integration within the EU.
There has been a significant fall in the number of the credit institutions in the euro area although evidence shows the number of branches to have remained the same thereby implying M&.A activity as having played a far more significant role than branch restructuring in the process of consolidation (ECB, 2005). We find an increase in M&.A transaction value from 8.3 percent to 27.1 percent for the period 1992 to 1997-1998. For 1998, the financial sector recorded a 500 percent increase in the value of mergers.