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BIS sees continuing weakness in European banking sector

June 29, 2014

Frankfurt (Alliance News) - Europe's banking sector is in a critical situation even six years after the height of the global financial crisis, the Bank for International Settlements said in its annual report published Sunday.

"The good news is that the global economy is healing and global growth has picked up during the past year," said Jaime Caruana, BIS general manager. "Reforms have taken hold, if unevenly."

But while the euro area has emerged from recession, as Caruana acknowledged, the report noted that much more needs to be done to make banks more resilient and their business models more sustainable.

A risk in Europe is the high debt held by banks, BIS said, while adding that banks in the eurozone were working with the European Central Bank to remedy the problem.

"In crisis-hit countries, there is a need to put more emphasis on balance sheet repair and structural reforms and relatively less on monetary and fiscal stimulus," said the report from Basel, Switzerland-based BIS, which is known as the "bank for central banks" and counts among its members 60 centrals banks from around the world.

Outside the euro area, and particularly in the US, banks' profits have significantly improved in the past year, the report said. But it also said that fiscal policy expansion has failed to jump-start the economy.

In the eurozone, countries' debt crises and disappointing economic performance have dimmed the profit outlook, it said.

"In the euro area, partly because of the institutional specificities, a sovereign crisis erupted in full force, threatening a 'doom loop' between weak banks and sovereigns," it said.

BIS also pointed out that in some crisis-hit economies, inflation has been persistently below target while in some cases there have been concerns about deflation - especially in the euro area.

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Source: Alliance News

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