With euro zone banks still enjoying the positive impact of low interest rates, overcapacity in the financial sector may be the key hurdle weighing on profitability, European Central Bank President Mario Draghi said on Thursday.
“Overcapacity in some national banking sectors, and the ensuing intensity of competition, exacerbates this squeeze on margins,” Draghi told a conference. “Such over-capacity also means the sector does not operate at the efficient frontier, which is one reason why cost-to-income ratios remain high in some countries.”
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