Institut Montaigne
Reinventing the European Banking Sector

The European Banking sector must be considered strategic

The independent think tank “Institut Montaigne” released a report analyzing the European banks´ main challenges in the coming years, providing several recommendations for banks and policymakers, in order to achieve “a strong banking sector, critical to European sovereignty and to allowing the financial system to allocate savings efficiently”.

  • European banks suffer from persistent cyclical and structural challenges. Among the cyclical ones the report points out to the lower economic growth in Europe than in US (between 2010 and 2019) and to the persistent negative interest rates. Among the structural ones, the report highlights the European market fragmentation (“The top three banks hold 10-15% of the euro area’s assets compared with 35% in the United States”), the lack of completion of the banking and capital markets union, or the new digital competitors, which are “raising standards of expertise and quality to levels that are often difficult for banks to match.”
  • Banks will need to reinvent themselves. Basically, by boosting revenue generation and reducing operational costs; identifying those areas in which banks can deliver strong customer value and differentiating expertise and establishing partnerships with FinTechs or with other strategic players.
  • The banking industry is a strategic industry for Europe. Policymakers must play their part to revitalize the banking sector by completing the banking and capital markets union and by building a strategic vision for the European banking industry, with a focus on stability, profitability and on enabling cross-border activity, considering also continued digital disruption and climate transition requirements. To that end, the report provides the following 4 key policy objectives:
  1. Reaffirm the strategic nature of the banking sector, seek the completion of the Banking Union and make effective progress in the Capital Markets Union.
  2. Develop an industrial policy for the European banking sector in the digital age.
  3. Integrate financial stability considerations more explicitly within monetary policy normalization.
  4. Integrate European banking supervision and regulation in a global vision for the sector’s upcoming challenges.

In summary, the report concludes that achieving stronger European banks is critical to allocating savings efficiently, supporting the post-Covid-19 recovery and fostering the digital and sustainable transition of the European economy. For that reasons revitalizing the European banking sector should be a strategic priority for the European Union.

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