The European banking industry is in a state of turmoil. The pace of mergers and acquisitions has accelerated across different banking sectors and within the same sector. At the same time, the demise of banks already in trouble has accelerated. This report analyzes what lies behind the historic segmentation of EU financial markets because a clear view about these issues is needed to predict the changes that EMU will bring about. The authors examine the policy implications of these changes and propose measures to address the problems that may be encountered.