In addition, the introduction of the two-tier system for reserve remuneration will help mitigate the cost of negative interest rates for banks. Structural factors are at the heart of weak bank profitability, however. In particular, euro area banks face challenges linked to the sector’s overcapacity. There are too many banks.
We need to remember that these reports are designed to serve as early warning signals by pointing out to policy makers the key risks and vulnerabilities faced by policy makers. Most financial stability reports do this by reporting the latest level of key financial soundness ratios.