After two months of emails and phone calls waiting for the ECB to provide us with simple concise answers that avoid jargon, this is the best they could it seems:
As outlined in the chapter 2.1.3 of the Report on Financial Structures of October 2017, “the concentration of banking markets, as measured by the share of total assets held by the five largest credit institutions or by the Herfindahl index (HI), was on an increasing path both within the euro area and the EU following the pre-crisis period. However, concentration appears to have peaked in 2014 (in the euro area the HI decreased from 729 to 697 between 2014 and 2016, while the share of total assets held by the five largest credit institutions decreased from 48.4% to 47.7%)”
Answered by: ECB
Bad banks generally describe financial institutions set up especially for the holding and management of problem assets. Commonly, a bad bank is created by splitting up an institution into a good bank and a bad bank.
If in the context of this query “bad banks” shall be interpreted as underperforming banks that are acquired by stronger peers, this will in principal lead to a reduction in the total number of banks. However, there is no general rule as regards the effect of mergers or acquisitions on sectoral concentration, especially if concentration is used as a measure of competition.
This depends, among others, on the structural composition of the banking sector. Germany, for example, has a relatively large number of savings and co-operative banks, many of them with regionally restricted business models. In this case, the merger of two smaller institutions with distinct regional activities does not necessarily have a significant effect on competition.
Answered by: Bundesbank
After the crisis, there was an increase in concentration. But you need to broaden the definition of banks now to include start-up, challenger banks that are starting to emerge across the euro-zone. There are a lot of data companies that have now been given banking licenses.
So if you think of concentration in terms of competition, actually there are more and more small banks popping up online now across Europe that are new competition. For example N26 is now pan-European although it’s based in Germany. These are accountable to the same regulatory regimes as other banks, they still have to have banking license in order to take deposits. Transferwise is similar. They’re basically retail banks that offer other services via third-party providers. Unlike normal, big banks, they don’t take your money and invest it, instead, you have more control as an individual and you can choose your own portfolio and invest your money how you like.
Answered by: a German Bank Official