Weak bank profits a stability risk for euro zone: ECB

Low euro zone interest rates will squeeze bank margins, raising financial stability risk for the bloc, even as its economic prospects appear to be stabilizing after a long slide, European Central Bank Vice President Luis de Guindos said yesterday.

“Weak profitability and squeezed margins pose a risk to financial stability as they may hamper banks’ intermediation and capital generation capacity,” de Guindos told a conference.

“The current environment is characterized by a weakening of the macroeconomic outlook and increasing uncertainty, even though the latest indicators point to a stabilization of economic activity.”

De Guindos repeated his call for euro zone countries to consider raising counter cyclical buffers on banks, which can be released quickly in case of an eventual downturn to help lenders to sustain the flow of credit.