The increased resilience of the euro area banking sector is in large part down to the regulatory agenda since the crisis, but it is hard to deny that this agenda has also created some uncertainties, for instance over steady state capital levels, which are reflected in bank share prices.
Regulatory constraints have had a direct impact on earnings capacity too, especially in the investment banking space. Revenue generation from fee, commission and trading income has fallen significantly as a percentage of assets since the crisis. This is a welcome and intended consequence of restrictions on excessive risk-taking, but comes at a time when interest income is also being compressed.