Megainstitutions and Financial Instability: The challenges for prudential regulation

ABSTRACT

This paper analyses the recent process of the financial concentration in major industrialized countries. It reveals that the formation of large diversified financial conglomerates consolidates the so-called “full-service banking or financial supermarkets” in the United States and the Allfinaz in Europe. It also evaluates the role played by these megainstitutions in the intensification of financial instability due to increasing potential moral hazard and the systemic risk. Finally, it deals with difficulties faced by authorities in the supervision and control of these megabanks.

KEYWORDS:
Mergers and acquisitions; banks; financial instability; corporate governance