European banks start with a clean slate
The largest and darkest clouds that hung over Europe's banks appear to have all but cleared in time for the new year.
Lack of clarity around post-crisis financial regulation has been a major cause for concern for the continent’s banks, but in 2018 — for the first time in a decade — firms will have a clear idea of what is required of them.
Regulators put pen to paper on the Basel III banking reforms in mid-December, for example, ending more than a year of uncertainty for European banks with an agreement that included a series of welcome compromises.
And banks will be able to race towards meeting their targets for the Minimum Requirement for own funds and Eligible Liabilities (MREL) now that European regulatory authorities have more or less agreed on what it will take to move from bail-outs to bail-ins.
Even the non-performing loan outlook is looking up. New rules about how to deal with bad debt may be in the offing, but asset quality is improving and that is only likely to continue as growth in the European economy picks up.
It’s hardly surprising, then, that investors are finding it hard to label any one bank as the “sick man” of the European banking sector.
Contrast that with recent history, when Banca Monte dei Paschi di Siena has sailed close to collapse and when there have been concerns about the health of large and systemically important firms like UniCredit and Deutsche Bank.
Of course, FIG bond market participants should not grow complacent. The worst trouble always comes when everyone is expecting it least.
But the European banking sector is fortunate enough to be starting 2018 in reassuring shape.