Difficult conditions in the EU financial sector
Over the last few years, the operating environment for the EU’s financial sector has severely deteriorated, leading to rising costs. This is mainly the result of the long period of low interest rates, which has put pressure on margins. Since March 2016, the European Central Bank’s main refinancing rate has stood at zero percent, and no change to monetary policy is on the horizon.
There is also fierce competition from FinTech and Big Tech companies, which are increasingly penetrating the traditional banking industry with fully digital solutions. These include creative, agile start-ups and multinational tech giants like Google, Amazon and Apple, with their huge customer bases. Compared to traditional banks, these innovative newcomers are committed to automation, thus ensuring lower costs and higher margins.
On top of this, banks find themselves under intense regulatory pressure. Since the global financial crisis, the EU’s banking sector has been adversely affected by a deluge of laws and regulations. All these factors have resulted in declining earnings and rising costs for financial institutions.
They have to find a way out of this downward spiral if they are to remain competitive.