Despite the inexorable march towards globalization, caution in designing and implementing refocused strategies is needed because evidence of the impact of consolidation on efficiency, competitiveness and profitability is not incontrovertible.

A sound and fundamentally strong financial system is a pre-requisite to the growth of a vibrant economy. Globalization of financial markets intensified competition leading to the establishment and growth of monolithic financial institutions. Rapid growth of international trade, the possibility of banks abroad pursuing those activities that are prohibited in the home country and the distinct opportunity of tapping overseas eurodollar and other markets spawned consolidation in the US, Europe and Japan. It was widely expected that consolidation would enable banks to capture greater efficiencies and increase revenues through expansion. The relaxation of historical restrictions on both interstate and intrastate banking as well as the Gramm-Leach-Bliley Act (1999) provided an impetus to banks to merge across geographical boundaries. Jones et al. (2005) show that consolidation in the US banking industry led to a reduction of nearly 50% in the number of bank and thrift organizations over the last 20 years. Consequently, consolidation emerged as a defining characteristic of the modern banking world primarily to leverage benefits of large size, expanding and diversifying bank loan portfolios to lessen likelihood of failure and harnessing core competencies.

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