The ECB’s interest rate policy and the future of euro-zone banks

The ECB will probably lower its interest rates further, and this is likely to weaken euro-zone banks even more due to the squeezing of intermediation margins. This will result in a further fall in these banks’ return on equity (RoE) and market capitalisation. We can then imagine two possible scenarios for euro-zone banks: The low level of their RoE prevents them from raising capital, they contract and there will inevitably be a disintermediation of the financing of the economy or, a shift to financing of the euro-zone economy by US banks; The excessive weakness of their market capitalisation will make them easy preys for US banks.