Banks are struggling to overhaul the way they do business given new realities and new regulations adopted in the aftermath of the global financial crisis. While banks are generally stronger—they have more capital—they are less profitable, as measured by the return on equity. There are a number of reasons behind this, including: anemic net income at banks, particularly in the euro area; higher levels of equity; and banks taking fewer risks.
If they cannot change their business models, there is a risk that banks will not be able to provide enough credit to help the economy grow and recover.
Filed under: Advanced Economies, Economic research, Europe, Finance, Financial Crisis, Financial regulation, growth, IMF, International Monetary Fund, Reform | Tagged: banking sector, business model, ECB, economic recovery, equity, euro area, financial markets, Global Financial Stability Report | Leave a comment »