This process has been costly both in terms of lower profits and diverted management time. Many banks also still have to work through their large stock of non-performing loans (NPLs), which further weighs on earnings prospects. Sufficient recovery from NPL resolution is hindered by slow national insolvency procedures for firms and an underdeveloped European distressed debt market.
The second challenge is adapting to the new wave of regulation since the crisis. Banks have been required to improve both the quantity and quality of their capital, which has, in the short-term at least, led to a de-risking of banks’ balance sheets to improve riskweighted assets.