Europe’s banks may be at risk of failing if negative rates continue: EIU

via CNBC:

  • Large banking institutions face the risk of failure if interest rates in Europe continue to stay negative, Simon Baptist, global chief economist of the Economist Intelligence Unit, told CNBC.
  • European banks have struggled for years in a persistently low interest rate environment. Low interest rates hurt lenders’ profits as they narrow the margin that banks can earn.
  • “If interest rates stay below zero, they’re certainly not all going to be able to be profitable, running as they are today, in 10 years time,” Baptist said.
  • “There’s either going to have to be consolidation … maybe some bank failures, or some really radical changes in business models,” he added.

Large banking institutions face the risk of failure if interest rates in Europecontinue to stay negative, an economist told CNBC after the European Central Bank cut rates last week.

“I think there are big questions to banking sector profitability,” global chief economist of the Economist Intelligence Unit, Simon Baptist, said Friday.

The ECB on Friday cut its main deposit rate by 10 basis points to -0.5% — an all-time low.

European banks have struggled for years in a persistently low interest rate environment. Rates in the Euro zone first hit zero in 2012 and turned negative in 2014. Low interest rates hurt lenders’ profits as they narrow the margin that banks can earn.

“If interest rates stay below zero, they’re certainly not all going to be able to be profitable, running as they are today, in 10 years’ time,” Baptist said on CNBC’s “Street Signs.”

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