Publications

Financial institutions in both the US and eurozone have had to contend with challenges including a flattening yield curve and more stringent capital requirements. In 2009, the spread between long- and short-term government bond yields stood at four percentage points in both the eurozone and the US. That spread has since narrowed to within one percentage point in the US and two percentage points in Europe, making it hard to generate net interest income. Nevertheless, US banks have proven more resilient, with average RoE virtually twice that reported by EU financial institutions. These differences can be attributed to a multitude of factors including a more robust economic recovery in the US and an uptick in US banks’ M&A activity, which has not been mirrored by EU banks. While European banks have improved their overall capital and NPL ratios, their lower levels of profitability should remain a concern. Going forward, with the next round of stress tests scheduled for this year, it remains to be seen whether new data will inspire greater confidence in the banking industry on either side of the Atlantic.