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If we follow the stock market indicators, a further consolidation wave in the EU financial sector is imminent. Banking stocks, stocks of financial services providers such as stock exchanges, have surged a lot over the last year, and hedge fund have built up huge stakes in takeover targets. The second wave of banking consolidation may be more European than the previous one, and some high profile acquisitions can be seen as the prelude of this. This raises the question whether the EU’s Financial Services Policy 2005-2010 is in line with and responding to these developments, and whether the supervisory structure is adapted. European banks are by and large retail banks. Only a handful banks are important players in investment banking and securities trading. Bank managers reckon that, to be successful in retail banking, a bank needs to have 20 million customers, but only a few European banks meet this target today. For policy makers, this implies, for growth in the financial sector to happen and efficiency gains to be realised, that the integration of retail financial markets is a priority. 1. THE STATE OF CROSS-BORDER CONSOLIDATION IN THE FINANCIAL SERVICES IN EUROPE According to a European Commission survey (2005), when compared to other sectors, cross-border consolidation activity in the financial sector is lagging behind. Indeed, the survey report