They are reinforced by economies of scale that benefit large financial companies gathered together in a few locations. One such example of a financial centre is London. Mortgage institutions with standardised products independent of distance to customers and borrowing in an international capital market ought to be activities that can profit from these cluster benefits. The concentration trend that we have been able to perceive over the past 15 years among Swedish mortgage institutions demonstrates that these are also following this structural trend. 4  BIS Review 15/2003  Challenge 2 - International regulations One of the intentions behind the EU's internal market and the introduction of the euro is to create a more efficient market for products and services in which competition increases and customers obtain better products at lower prices. One aspect of this is the EU's Financial Services Action Plan that is to be realised by 2005. The Plan contains 42 measures that aim to remove remaining obstacles to cross-border trade in financial services and to promote financial integration in the EU. At the same time, measures are been taken to support the supply of risk capital in the EU. These action plans will help realise the vision of making the EU the most competitive, knowledge-based economic area in the world by 2010. Three-quarters of the measures in the Financial Services Action Plan have already been decided. This will also affect mortgage institutions, as they are major participants in the markets for both lending and borrowing.

The growing capital market in euro is becoming increasingly important as a source of financing for Swedish companies, so far primarily for major enterprises and institutions that can manage currency risk. This would provide a larger financing base without currency risk for Swedish companies if we were to introduce the euro in Sweden. It is not just the interest rate markets that have been affected by European integration and the general trend toward internationalisation. The changed market conditions have also affected competition and thereby the structure among market players. Financial activities tend to benefit considerably from large-scale operation. High, fixed costs in the form of training, highly skilled staff, large and resource-intensive computer and analysis systems, and information retrieval mean that unit costs fall as turnover volume increases. One way to attain a sufficiently high turnover volume for fixed costs or to limit the disadvantages involved in large-scale operation could be a strong specialisation of activities. The trend we can see today in individual countries, of banks merging to create larger entities, is a result of an attempt to reduce unit costs and thereby increase profit margins through economies of scale. However, very few banks have so far established operations on a large scale in other countries. Most institutions have the majority of their activities and earnings in their home country. The consolidation that has occurred through cross-border mergers and acquisitions has generally not yet led to a radically different market in the EU for the services traditionally provided by banks to households and small companies.