The traditional banking sector in Europe continued to consolidate in 2014 while the shadow-banking sector maintained its growth, according to a new report from the European Central Bank (ECB) released on Thursday.
“This rationalization process resulted in an overall improvement of efficiency in the system,” the ECB report states.
The ECB report finds that banking sector’s total assets stood at €28.1 trillion ($40.9 trillion), on a consolidated basis, at the end of 2014, down by 15.7% from 2008. At the same time, banks increased their capital positions, bolstering solvency and reducing their leverage ratios. Specifically, the median Tier 1 ratio increased to 14.4% in 2014 from 13 % in 2013, the report says.
“These developments confirm the trend toward a more traditional banking business model,” the ECB report states. “At the same time, several euro area countries need to take further steps to tackle the problem of increasing non-performing loans in order to free up bank capital and boost credit expansion.”
In addition, the ECB finds that the so-called “shadow-banking sector” continues to grow, driven primarily by investment funds.
Finally, the ECB reports that euro area insurers’ and pension funds’ assets “have grown steadily in recent years.” Yet, the report also notes that, “The profitability of the insurance sector has been constrained by the low-yield environment and weak macroeconomic conditions.”