The Vice-President of the ECB Supervisory Board defends that European banking has closed the gap with the US in profitability and efficiency, and calls for a real single banking market to compete in the future.
The Vice-President of the European Central Bank (ECB) Supervisory Board, Frank Elderson, has stated that the profitability of European banks has matched that of US banks since the pandemic, with a return on equity (ROE) stabilised around 10%. He made this remark at an event organised by the Hertie School of Governance in Berlin, reported by ecb.europa.eu.
According to Elderson, the improvement is structural: eurozone banks have more capital, more liquidity, and better risk management frameworks, and their non-performing loan ratio has fallen from 6% in 2015 to the current 2%. The upcoming ECB supervisory statistics, to be published next week, will confirm this trend.
The ECB Executive Board member also noted that the valuation gap with US banks has narrowed: the average price-to-book ratio of European banks is now around 1.5. In his opinion, this demonstrates that resilience, competitiveness, and profitability are not opposing objectives, but rather mutually reinforcing.
The question is not whether European banks are competitive today, but whether they will remain so in the future, he warned. The main obstacle he identifies is the persistent fragmentation along national lines: banks grant around 80% of their loans within their own country, less than 2% of deposits are held in another member state, and cross-border merger activity has sharply declined since the years leading up to the crisis.
This fragmentation limits eurozone banks' ability to build pan-European business models and scale their activities, putting them at a disadvantage compared to global competitors when mobilising the large investments needed for digitalisation, the deployment of artificial intelligence, or cybersecurity. It also reduces their capacity to channel savings into the investment required for the digital and green transitions, defence spending, and Europe's strategic priorities.
Elderson insisted that Europe needs to strengthen its strategic autonomy in a hostile geopolitical environment, and that this requires investments on an unprecedented scale. According to an analysis by the ECB itself, the EU needs massive investments that must largely come from the private sector, and banks must be in a position to finance them.
"Resilience, competitiveness, and profitability are not opposing objectives for banks. On the contrary, they reinforce each other."
The ECB's supervisory head advocated for completing the banking union and moving towards a true single market in the sector, which would allow entities to achieve the scale necessary to generate cost savings and diversify their income sources. "The single market in banking is still far from being single," he concluded.
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