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Banking risks and regulation

Banking risks and regulation

Context

European banks fared the coronavirus (COVID-19) pandemic with stronger capital positions, higher liquidity buffers and better asset quality. This time European banks have been part of the solution, although these positive developments have been made possible also thanks to exceptional support measures from public authorities.

However, a negative impact from such a shock is eventually unavoidable provided that the public support is reaching limits while a stagflation risk is unfolding.

In addition, the fact remains that the European banking sector was already beset by structural weaknesses when the Covid crisis hits: persistent low profitability caused by excess capacity, lasting very low interest rates and low-cost efficiency has been driving bank valuations to historic lows.

Technology also opens the gates to further non-bank competition (such as from big tech firms), while at the same time providing scope to exploit new business opportunities.

Furthermore, banks also have to address the global emerging challenges posed by topics such as climate-related financial risks, cyber risk, and operational resilience.

Related regulatory challenges will add to those stemming from the implementation of the most recent additions to the banking regulatory standards – Basel III – launched in the wake of the 2008 financial crisis, which are expected to be implemented factoring in EU financing specificities.

Eurofi documents

Extracted from the main Eurofi publications (Regulatory Updates, Views Magazines and Conference Summaries)

Regulatory Update

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Summary

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Views The Eurofi Magazine

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Key contributions

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