Another essential component is to reverse the damage to the economy caused by the crisis. It has reduced the euro area’s output level and perhaps also its growth rate. To turn that around requires higher investment in human and physical capital – and in all euro area countries.
Over time, we have observed that banks have increasingly diversified into securities trading, investment banking and asset management. Although much was expected from this diversification strategy, the market correction was a reminder that fee income generated by these businesses also carries risks. Looking back, I think we can also say that some banks entered the businesses too late and at too high a price.