ECB: European banks – The quest for the best business model

07 November 2017

The ECB's Sabine Lautenschläger gave an address on the evolving business models of the European banking sector.

Sabine Lautenschläger, Member of the Executive Board of the ECB and Vice-Chair of the Supervisory Board of the ECB, highlighst a few points:

• First, for a long time, economic growth was low. Together with low interest rates, that has put a brake on a traditional source of revenue. Banks, in particular those that have not found a profitable market niche, need to diversify their sources of revenue. Digitalisation might offer a solution, but it is certainly not the only one.
• Second, some national banking markets in Europe are overbanked and therefore overly competitive. So there is a need for consolidation – consolidation which leads to stronger banks with viable business models.
• Third, many banks still have high costs, partly because of their large branch networks. But how large do these networks actually need to be in this age of digital banking?
• Fourth, some banks are still weighed down by impaired balance sheets. They need to get rid of legacy assets such as non-performing loans.
• Fifth, some banks could improve the way they handle risks. They need to establish a strong risk culture, set up adequate risk governance and integrate it into their overall structure.
• And finally, all banks have to adapt to more stringent rules. It is true that they come at a cost, but in the long run, their benefits are greater. Society benefits in any case, but so do the banks. Strong rules help to win people’s trust, and that is an important asset for banks.

These are challenging times for banks; there is no doubt about that. One thing is clear, though: tomorrow’s business models will look different from today’s. But hasn’t that always been true?

Speech

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