European banking industry during recessions - statistics & facts
The European banking industry has undergone significant changes and improvements in its regulatory framework following the global financial crisis of 2008. The introduction of strict capital requirements by the European Banking Authority (EBA) has played a crucial role in enhancing the resilience of banks in the region. This resilience manifests, for instance, in the steadily declining non-performing loans ratio since 2015, reaching historically low levels of around three percent at the end of 2021. Furthermore, the industry demonstrated robust performance in terms of common equity tier 1 (CET1) ratio, one of the main precautionary measures to protect banks from a financial crisis. The total assets of the Eurosystem declined in 2022 compared to the previous year but remained well above the values reported prior to the COVID-19 pandemic. These indicators of stability and growth showcase the improved preparedness of European banks. Despite the enhanced regulatory framework, the European banking industry faced some challenges during subsequent recessions.
The failure of Silicon Valley Bank (SVB) and Signature Bank in March 2023 sent shockwaves through the markets, triggering a period of turmoil. Just over a week following the collapse of SVB, the banking crisis extended its reach across the Atlantic. Credit Suisse, Switzerland's second-largest bank, faced severe repercussions due to years of mismanagement and multiple scandals. As its market capitalization plummeted and share price decreased drastically, confidence in the bank eroded, ultimately leading to its acquisition by its longtime rival, UBS. The distressing indications of a banking crisis had a ripple effect, causing a sharp decline in the stock prices of numerous other European banks. By mid-March 2023, the average share prices of major European banks had plummeted by over 15 percent compared to the beginning of the month, reflecting the widespread impact of the crisis. However, it is important to note that after the initial turbulence, the banking industry regained stability, suggesting that the events in March 2023 were more of a scare than the beginning of a prolonged crisis.
Industry performance during recessions
Key performance indicators (KPIs) provide insights into the industry’s declining performance during the global financial crisis, the euro crisis, and the COVID-19 pandemic. The quarterly cost-to-income ratio, which measures the efficiency of banks, experienced upward trends during these downturns, with particularly sharp spikes in 2008 and 2020. These increases indicated higher costs relative to income, which can be attributed to a combination of factors such as increased provisions for loan losses and reduced revenue generation. Additionally, the quarterly CET1 ratio, which measures a bank's capital adequacy, witnessed fluctuations during these recessions, reflecting the impact of economic downturns on banks' capital buffers. Finally, the industry experienced a slowdown in its asset growth rate, highlighting the challenges banks face in expanding their balance sheets amidst economic uncertainties. These indicators also suggest that, despite worsening economic conditions, the European banking industry remained resiliant in 2022.Banking crisis of 2023
The failure of Silicon Valley Bank (SVB) and Signature Bank in March 2023 sent shockwaves through the markets, triggering a period of turmoil. Just over a week following the collapse of SVB, the banking crisis extended its reach across the Atlantic. Credit Suisse, Switzerland's second-largest bank, faced severe repercussions due to years of mismanagement and multiple scandals. As its market capitalization plummeted and share price decreased drastically, confidence in the bank eroded, ultimately leading to its acquisition by its longtime rival, UBS. The distressing indications of a banking crisis had a ripple effect, causing a sharp decline in the stock prices of numerous other European banks. By mid-March 2023, the average share prices of major European banks had plummeted by over 15 percent compared to the beginning of the month, reflecting the widespread impact of the crisis. However, it is important to note that after the initial turbulence, the banking industry regained stability, suggesting that the events in March 2023 were more of a scare than the beginning of a prolonged crisis.
