Merging Matters

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The Dilemma of Europe’s Banks

European Central Bank Supervisory Chief Daniele Nouy Interview
Danièle Nouy, the euro zone's top bank supervisor, said European banks are more resilient and better prepared to deal with another crisis. Source: Bloomberg [M]

Ten years have passed since the financial crisis broke out. The banking business has changed significantly during the past decade. From capital resources to liquidity, from bonuses to dramatically stricter rules of conduct – the entire segment has been transformed. Bank overseers and politicians can slap each other on the back and say with satisfaction how much safer they have made the banks. The only problem is that safe does not mean stable.

European banks are still plagued by a long list of problems. Bad loans of nearly a €1 trillion ($1.07 trillion) are poisoning the balance sheets, operating costs are far too high and earnings way too low. As a result, profitability is feeble.

The reasons for these woes are well known – tougher regulatory control and chronically-low interest rates, while the next big structural change looms with digitalization. The key question is what therapy will put Europe’s banks back on the road to recovery? The chair of the European Central Bank’s supervisory board, Danièle Nouy, is convinced that consolidation of the hopelessly overweight European banking sector is “absolutely necessary.”  She sees mergers and acquisitions as unavoidable.

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