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Sabine Lautenschläger said “Digital technology is rapidly gaining traction in the banking world. It brings new opportunities but also new competitors for each and every bank. And we are seeing more and more banks incorporating a digital dimension into their strategies. However, they are doing so at varying speeds and we are not always satisfied with their progress. All banks need to focus on transforming their services more quickly.”
Interest rates are still low, weighing on the profits of many banks. This situation makes it imperative for them to adjust their business models. Some banks still need to diversify their sources of income, manage their costs more diligently and become more efficient.
Legacy assets, such as non-performing loans, are still high in some parts of the banking sector in Europe. They depress banks’ profits and curb their ability to finance the economy. The good news is that there is some progress here.
And finally, Brexit is on the horizon, and will have a major impact on the banking sector. Most of all, it will affect those banks which access the European market from the United Kingdom and vice versa. They have to prepare themselves for other forms of market access – and quickly.
All this is happening at a time when the banking sectors of some countries still need to consolidate.
Europe’s banking union now rests on two pillars: alongside banking supervision, there is a mechanism that allows us to resolve banks without disrupting the financial system. Banks can fail, and they will fail. That became clear earlier this year when the new system passed its first test.
What is still missing, though, is the third pillar of the banking union: a joint deposit insurance scheme. But the first two pillars alone ensure that the most critical aspects are covered. Banks, their owners and their creditors not only have to comply with stricter rules and more intrusive supervision; they are also subject to greater market discipline as it has become clear that they can be allowed to fail.