While Spain and Italy’s banking sectors have seen increased M&A activity in recent years, including a bonanza of attempted deals in the latter — some of which have been scuppered by government pushback — focus might now shift to Germany and Poland.

Both markets have a relatively high number of banking institutions, including Germany’s Landesbank system resulting in a fragmented landscape with below-average profitability. Many European banks have a presence in central and eastern Europe, which would be bolstered by access to the Polish market, Nicolas Charnay, sector lead for financial institutions at S&P Global Ratings, previously told The Banker.

Banking M&A could also be slowed by prudential and competition regulators clashing over differing prerogatives, and the impact of shareholder activism pushing in areas such as geopolitical and climate change issues and trade unions disrupting deals.

Bank mergers and acquisitions are often regarded as an option for reducing overcapacity and weak profitability in the euro area banking sector. The euro area banking market has become increasingly concentrated, and a third of its banking groups – mainly the smallest banks – have disappeared since the global financial crisis. Despite this, the sector continues to struggle with weak profitability and excess capacity, with too many undersized banks and a costly physical banking infrastructure.

Some measures of bank efficiency lag behind those of other advanced economies too. The efficiency and stability of the banking system would benefit from further consolidation

which – as several policymakers have noted – should be driven by market forces, with each proposed transaction assessed individually.

Bank M&A activity in the euro area has mainly focused on transactions within national markets. Around 80% of all completed deals in the euro area have been domestic. Italy and Germany, which have two of the least concentrated banking sectors within the euro area, have witnessed the largest number of transactions, but very few of these have reached beyond national borders. Cross-border activity has been less frequent since the global financial crisis, comprising rather small deals involving mainly Belgian, French and Dutch banks.

While the aggregate effects of mergers on bank performance seem mixed in the literature, they are conditional on sound execution and strategic fit. an analysis of the period prior to the global financial crisis finds that M&A transactions had a moderate but positive impact on the profitability of the banks involved. It also underscores the role of strategic similarities which generate economies of scale as a success factor in bank M&As, while integration of dissimilar banks often proves costly. The positive impact of M&As also appears to be more pronounced when transactions are executed in a financial crisis,as distressed valuations may prove opportune to a well-positioned bidder. At the same time, other studies find that M&As have a slightly negative impact on profitability but a positive impact on cost efficiency. This is interpreted as a sign that cost savings are passed on to customers in a competitive banking market

European banking M&A in 2026 is surging, fueled by the need for scale, strategic capability, and regulatory support. With ample capital and strong consolidation appetite, banks are pursuing transformative deals, focusing on domestic and cross-border mergers, wealth management, and asset-backed financing, setting the stage for sustained growth and innovation.

Bank M&As have recently shown signs of recovery in the euro area after more than a decade of subdued activity. Transactions have focused on consolidation within national borders, and cross-border transactions have remained limited. Larger institutions and banks with stronger fundamentals appear to have played a dominant role as consolidators of the banking market.

Bank mergers have historically helped create a more solid system that is resilient to potential economic and financial crises. However, it is necessary to preserve a healthy competitive regime and supervise the large banking groups resulting from various mergers so that they do not focus solely on wealth management and corporate banking, but also protect small savers and small and medium-sized enterprises.

By Domenico Greco