A stronger banking union for a stronger recovery

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European Financial Stability Facility
27 August 2020

New ESM blog post

By Nicoletta Mascher and Rolf Strauch.

European banks are safer since the global financial crisis and the sovereign debt crisis. With the outbreak of the pandemic, a number of measures were put in place to make sure liquidity reach the real economy. Nicoletta Mascher and Rolf Strauch argue that banks need a stronger and completed banking union in order to emerge stronger from this crisis.

The euro area banking sector is faced with the current pandemic, while emerging from a long healing process after the global financial crisis and the sovereign debt crisis. This process has made European banks safer. With the outbreak of the virus, countries and EU institutions put a number of measures in place to ensure that banks can continue to provide loans and support the economy. Nevertheless, banks share prices plummeted right after the outbreak of the pandemic and have remained low. In fact, share prices reacted initially in pretty much the same way as in the past financial crisis although safer banks, after all, should be more likely to deliver adequate returns in the longer-term. What do share prices tell us about the state of the banking sector and why are they so low? In this blog post, we explain why investors seem to have lost trust in European bank profitability despite banks being much safer than in the last crisis.

Read the blog here

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