Almost 20 years after the onset of the global financial crisis, and more than a decade after the creation of the European banking union, there is an intense debate about the future of European banking.
Over the past decade, Europe’s banking sector has become much more resilient. This benefits the economy and society: financial services can be provided more reliably, and the probability and severity of potential crises are lower.
But further reforms are needed to make the European banking sector future-proof, to sustain the progress made and to tackle structural weaknesses. In Europe, growth and innovation are being held back by geopolitical tensions, a fragmented Single Market and a complex institutional framework.
Safeguarding banks’ resilience is equally important in light of heightened financial and operational risks. Geopolitical risks have already materialised, but their effects on banks’ balance sheets unfold only over time. The digitalisation of financial services provides new opportunities to adapt banks’ business models but introduces new risks. Cyber risks can pose a threat to banks’ operations, requiring investment in IT and cybersecurity.
Resilience is thus needed – to keep deposits safe, payments systems functioning and credit flowing, including in times of stress.
There is a way to avoid undesirable trade-offs between promoting growth and preserving resilience. Sustainable growth and resilience are, in fact, two sides of the same coin. The European Commission’s report on the competitiveness of the EU banking sector provides an opportunity to advance both.