Morgan Stanley
  • Research
  • Mar 19, 2018

Reflation Could Put a Shine on European Banks

Over the past decade, European banks have wrestled with rock-bottom interest rates. But with dynamics changing, some markets could see notable profit boosts from even a small uptick in the Euribor.

As interest rates in Europe fell to unfathomably low levels over the last decade, lenders found themselves in a tough position: Mortgage interest—and therefore income—fell in lock step with the Euribor, and yet banks only had so much leeway to cut interest paid on deposits, which are their primary source of funding for mortgages. Banks adapted to operating in this environment by cutting costs and improving back-office efficiencies, but margins have nevertheless been squeezed. 

An Eye on Rates