In fact, capital markets and other non-bank sources of external finance have been growing relative to banks.5 This growth should improve firms’ access to funding, and ensure that any losses are dispersed more widely. Low bank profitability The overbanking in Europe, highlighted in the ASC’s report, is also a factor in the currently low 1/4  BIS Central Banker's Speeches  level of bank profitability. A number of reasons have been mooted as the causes of this low profitability, including low interest rates. Long-term real interest rates have been falling in the major advanced economies for two decades. Technological change, demographics, income inequality and safe asset scarcity are just a few of the factors exerting downward pressure on long-term real rates.6 Accommodative monetary policy by the European Central Bank and other major central banks, acting in accordance with their price stability mandates, has also contributed to low interest rates. Low interest rates tend to squeeze net interest margins owing to downward rigidity in banks’ deposit rates.7 But overbanking is also a factor in the current low level of bank profitability. Overcapacity in some national banking sectors, and the ensuing intensity of competition, exacerbates this squeeze on margins. Such over-capacity also means the sector does not operate at the efficient frontier, which is one reason why cost-to-income ratios remain high in some countries. At the same time, banks benefit from revaluations in their fixed income portfolios.
(2016), “Assessing the implications of negative interest rates”, speech at the Yale Financial Crisis  Forum, Yale School of Management, July. 9 These challenges are set out in more detail in an ESRB report on the macroprudential issues arising from low  interest rates and structural change in the EU financial system. 10 European Systemic Risk Board (2016), “Macroprudential policy beyond banking: an ESRB strategy paper”, July. 11 European Systemic Risk Board (2016), “EU Shadow Banking Monitor”, July. The methodological background to  the ESRB’s EU Shadow Banking Monitor is described in: L. Grillet-Aubert, J. Haquin, C. Jackson, N. Killeen and C. Weistroffer (2016), “Assessing shadow banking – non-bank financial intermediation in Europe”, ESRB Occasional Paper no.10. 12 European Systemic Risk Board (2012), “Recommendation on money market funds”, December. Further  analysis of money market funds’ systemic importance is provided in J. Ansidei, E. Bengtsson, D. Frison and G. Ward (2012), “Money market funds in Europe and financial stability”, ESRB Occasional Paper no. 1. 13 Abad, J., I. Aldasoro, C. Aymanns, M. D’Errico, L. Fache Rousová, P. Hoffmann, S. Langfield, M. Neychev, and T.  Roukny (2016), “Shedding light on dark markets: First insights from the new EU-wide derivatives dataset”, ESRB Occasional Paper no. 11. 14 European Systemic Risk Board (2015), “Report on the efficiency of margining requirements to limit pro-cyclicality  and the need to define additional intervention capacity in this area”, July.