The European Central Bank (ECB) insists on the need for European banks to hold as much capital as possible. Their strength, in terms of capital, is considered a guarantee of solvency and long-term sustainability. It is striking that many European banks at the top of the capital rankings suffer from low profitability and low efficiency.
It is not a matter of choosing between capital and profitability. In fact, profitability is synonymous with solvency. It allows for the generation of capital, which is essential to continue driving the economy and supporting customers in making their projects a reality, as Spanish banks do. Being profitable also makes it possible to reward savers through dividends and provide resources to sustain the welfare state through taxes.
A recent analysis by the Spanish Institute of Banking and Finance (IEBF) compares the European and North American banking systems from a context and activity perspective, taking into account capital and profitability ratios, among other metrics. North American banks are less capitalized but more profitable than European ones. The higher profitability of North American banking is explained by a combination of greater efficiency, higher margins, and market power in integrated financial markets with large companies, which diversifies funding sources.
These are two different business models. European banking focuses on providing credit to households and businesses, whereas in North American banking, financial market activity carries significant weight. The high density of the branch network in Europe compared to the United States is a good indicator of this difference.
The IEBF’s conclusions also highlight the need to continue making progress in banking integration at the European level and in the capital market. A strong economy requires a strong and profitable banking system, capable of supporting the economy and addressing society’s challenges.
José Luis Martínez Campuzano, spokesperson for the Spanish Banking Association
