Financial integration and stability: Good headway made in EU banking sector and capital markets, with further progress in reach

The EU banking sector is benefiting from a strong economy and supportive financing conditions, a new report by the European Commission out today shows. The performance of European banks has improved and their resilience has increased thanks to the restructuring of balance sheets.

Nevertheless, the sector continues to be challenged by tight interest margins and the provisions that banks are having to make for non-performing loans. Over the past year, growth in the banking sector was stimulated by supportive economic and monetary policy measures such as the European Central Bank’s asset purchase programme and the prolonged low interest rates. Today’s report, known as the European Financial Stability and Integration Review (EFSIR), also shows that the Commission’s risk reduction effort is also being reflected on the ground. Banks have increased their capital position, and limited their exposure to market risk by reducing bond and derivative portfolios. Nevertheless, the report finds that local capital markets continue to be very unevenly developed in Europe. In particular, markets in central, eastern, and south-eastern Europe lag behind those in western Europe, in terms of both size and liquidity. On the plus side, capital market integration is improving and firms’ market-based funding increased, in line with the objectives of the Capital Markets Union. The EFSIR report is an annual stock-take of recent developments in the financial sector. It was presented today at the yearly European Financial Integration and Stability conference, organised jointly by the Commission services and the ECB in Frankfurt. The full report is available online. The programme of the conference is available here and can be followed here. The ECB’s press release can be found here.