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There are too many banks for the industry to be profitable: Draghi

Mario Draghi, president of the European Central Bank
Martin Leissi | Bloomberg | Getty Images
Mario Draghi, president of the European Central Bank

Mario Draghi, the president of the European Central Bank, sees overcrowded banking industries in some European countries as one reason for the sector's low profitability.

Speaking at the ECB in Frankfurt opening the first annual conference of the European Systemic Risk Board, Draghi's remarks come at a time when banking associations across Europe, especially in Germany, complain that the low interest rates are threatening their business models.

While admitting that the low - and sometimes negative - interest rates are difficult for banks, this was not the only reason for the problems in the sector.

" The overcapacities in the banking sector clearly exacerbates the squeeze on margins," Draghi said. "The sector is not operating at the effiecient frontier, the cost income ratios are very high in some countries."

Overbanking is a common problem in European economies which rely traditionally on bank financing a lot more than the US economy. From the late 90s to today, bank financing as a ratio of gross domestic product has increased.

Draghi added that there were different ways of financing but more was needed to help turn around the banking sector - including a Capital Markets Union, which is pushed by the European Commission.


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