What are the risks faced by European banks? Technological risks, political and regulatory uncertainty, non-performing assets, and low margins that limit profitability recovery. How can these risks be combated? Banks must seek alternative formulas to boost profitability, as current monetary policy affects the entire structure of the interest rate curve. Furthermore, they must combine continuous balance sheet adjustments with increased cost efficiency and productivity through new, higher value-added financial services. Digitalization is a help, although it may be necessary to change the business model instead of incorporating digital advances into the previous model.
Where does bank consolidation fit into this debate? We have been talking for a long time about bank mergers in Europe as a natural process stemming from single supervision and resolution. However, not only has this not yet occurred, but on the contrary, it has led to a fragmentation of banking risk and even the renationalization of the sector in some countries. How can this be understood? The answer may be that the banking union is not yet complete. So, would a single deposit guarantee fund be the solution for European banking integration? It is not clear. The capital markets union, clear and consistent rules (for example, at the macroprudential and resolution levels), and the recovery of liquidity in the European interbank market would also be necessary to facilitate a full banking union. With all these conditions, banking consolidation would indeed be a more or less rapid natural process.
Last week, the European Commission announced a strategy, agreed with Parliament, to boost the European capital market, reviving the securitization market. It did not mention that this must be accompanied by measures that favor an increase in financial investment also at a European scale, which is vital for its success.
