Banks are at the heart of the EU economy, making them a key channel for monetary policy transmission. However, institutional factors continue to lead to fragmentation in the sector, constraining scale, efficiency and competitiveness. As shown by Altavilla et al. (2024), more competitive banks are more resilient to shocks and transmit monetary policy more effectively. The competitiveness of euro area banks has improved in recent years, reflecting stronger balance sheets and higher intermediation margins, but pockets of cost inefficiency and issues of scale remain, leaving further room for improvement. These factors could be eased by completing the savings and investments union and facilitating cross-border lending to increase both scale and efficiency, resulting in the smoother transmission of monetary policy in the euro area.
Nothing contributes so much to the prosperity and happiness of a country as high profits