ECB’s Enria Says Pandemic Marked a Turning Point for Banks
(Bloomberg) -- European banks have used the pandemic to start tackling long-standing issues that weigh on their profitability compared to U.S. competitors, according to their top regulator.
“There has been a long period in which European banks seemed to be waiting for the Godot of interest rates increasing and rebuilding their margins,” Andrea Enria, who chairs the European Central Bank’s Supervisory Board, said in an interview with Bloomberg TV’s Maria Tadeo on Tuesday. “With the pandemic they understood that they need to take action.”
European banks failed to bounce back from the 2008 financial crisis to the same extent as their U.S. rivals because they took longer to build up financial strength and clean up piles of soured loans. While Enria has previously acknowledged the need to overhaul Europe’s fractured banking market, he said lenders also need to self-help rather than blame regulation.
The lagging profitability is rooted in “structural weaknesses” like cost inefficiency, business models that lack focus and insufficient investments in digital technology, Enria said.
The ECB’s top banking watchdog, who is hosting a conference on Tuesday in Frankfurt, also said:
- He’s “glad” European banks have beat earnings estimates for six straight quarters and are generating profits at pre-pandemic levels two years ahead of their own expectations.
- The low interest rate environment was positive for banks until mid-2020, yet negative effects have since prevailed and these are “likely to stay for a while.”
- There’s “froth in some segments on financial markets” and banks need to focus on risk controls in case they are hit by a sudden change in interest rates or credit spreads.
- Credit Suisse Group AG’s “very candid report” on Archegos shows that banks sometimes put their business and competitive position ahead of internal controls “and this is a concern for me.”
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