Spurring financial institutions to take credit risk in these tough economic times may require consolidation. Larger financial institutions with greater investment diversity will have more tolerance for default risk, and thus will be more willing to extend mortgages, home equity lines, and revolving credit to consumers.

With many banks having sustained heavy losses of late, some observers say a wave of financial institution consolidation may be upon us. Any such deals could involve regional banks that are direct competitors as well as national banks with relatively large mortgage and card issuance portfolios. This could result in substantial market concentration, which in turn could cause antitrust enforcers to oppose a given merger.

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