countries banks fell into financial trouble with some becoming bankrupt.

Governments often
subsidized these banks and arranged consolidation of these troubled institutions into other
organizations.

A standard measure of consolidation is concentration. The assets and deposits of large credit
institutions are employed to create a ratio. Any increase in a concentration ratio is the indication of an
increase of consolidation and vice versa; a decreasing ratio of capital concentration could be the
result of either the entry of new banks or concentration among smaller firms, or both.

De Nicolo (2003) used data from IFS, OECD & FITCH – IBCA to calculate the capital concentration
ratio of the three largest banks in 115 countries, and for the five biggest banks in 95 countries. Data
analysis demonstrated a growing portion of market share in banking for the America, Western Europe,
some Eastern European and Latin American banks. However, the ratio declined in Africa, Middle Asia
and a few other individual nations. The unequal increase could be blamed on differences in the
development of countries, but it did show that consolidation was only occurring in certain regions and
countries, rather than on a global scale.

Internationalization
Bank consolidation took place not only within countries but also across borders. Smith & Water (1998)
recorded a growth in transactions among countries between 1985 and 1995. Of these, 15% were
deals under which banks in developed countries bought out financial institutions in emerging
countries. BIS (2001) also revealed that internationalization in emerging countries was reflected in the
increased number of foreign banks in developing countries. Expansion around the globe relied on
income probability, weighed against the legal environment in the recipient country. Large banks with
high profitability and based in developed countries were seen to buy stakes in promising banks in
countries that showed potential, even if the capital concentration ratio of the banking sector in these
countries was low and local legal frameworks incomprehensive.

De Nicolo (2003) estimated internationalization by analyzing data collected on foreign-owned banks in

105 countries. Internationalization grew significantly in wealthy nations from 15%-20% until the 2000.
As with consolidation, the regional distribution of internationalization was unequal. Western Europe
recorded the highest growth rate, 67% of total assets held by globally owned banks, followed by the
United States of America at 22%, with US increases mostly attributed to international expansion by
European banks. The study also recognized that internationalization occurring in low and medium
income countries was determined by the appearance of attractive investment opportunities.
Internationalization is on the rise in wealthy countries, and on the decline in poorer nations. The data
also indicates internationalization is mainly region-oriented, rather than global.

Consortium
Information technology and deregulation have pushed the development of consortiums in
industrialized nations. While such factors are emerging in developing countries, they have not yet
reached a level to drive the formation of consortiums.

De Nicolo (2003) used financial data from the worlds’ 500 largest financial groups, decided by asset
holdings between 1995 and 2000, to assess consortium trends around the globe, including those in
emergent economies. Estimates peg the concentration ratio of financial groups at an increase (total
asset). In 2000, of the 50 biggest firms 92% were consortiums (holding up to 94% of the total assets
of those studied). Of the 500 biggest financial organizations, only 60% were consortiums; the same
rate was also found in the largest 100 and 250 financial organizations.

The government trend to deregulate multi-national banking activities has also encouraged banks to
introduce more comprehensive services. Global banking services require international operations,