How much is too much? February 26, 2014 at 8:27 am
Marco Onado at Vox EU makes a couple of good points:
- European Banks’ gross and net profitability are at a historical low level, so
- They have an incentive to remain on the present levels of leverage to obtain a ‘reasonable’ return on equity and
- the rate of increase of capital allowed by retained earnings is modest.
To this I would add:
- Credit in Europe will remain rationed and expensive until capital and leverage standards are reduced, or banks’ earnings increase.
I think Prof. Onado implies that this situation isn’t sustainable for much longer: to agree one only needs to think that a fix that requires a decade or more of austerity isn’t politically tenable.