Government regulation 

In 2019, the EU continues to implement the Markets in Financial Instruments Directive, or MiFID II. This directive was supposed to help create a common European market of financial instruments and services. In 2022, the transition to the regulatory framework for banking called Basel III is planned. Basel III is a document released by the Basel Committee on Banking Supervision. Lawmakers put pressure on the markets preparing for different Brexit scenarios. Therefore, easing of the monetary policy is crucial, especially for the financial markets with derivative contracts of trillions of euros. Experts urge investors to closely monitor any signals coming from the Federal Reserve System.

Mergers and Acquisitions

In the coming year, there is a high probability of a merger between such large financial institutions as Deutsche Bank AG and Commerzbank AG, as well as Italian bank UniCredit SpA and French Societe Generale SA. Such measures can allow the financial institution to improve financial performance and reduce costs. However, analysts doubt that this will help solve problems with “unprofitable” assets. In 2019, experts predict a new wave of consolidations in the German banking sector.

New banks emerging

Many banks will have to spend billions on investments in outdated infrastructure and withstand competition in the market. Meanwhile, a number of large financial and technology companies are planning to place shares on the stock exchange. In 2019, banks will experience even stronger pressure from fintech companies. Larger financial institutions will consider buying leading technological companies. Analysts advise investors to keep an eye on the situation in Asia where the value of 13 fintech companies has already reached $217 billion.

Credit risks and expenses

Some years ago, a company’s profitability could be easily increased with the help of small funds. Today, the situation is changing, and the economic forecast for 2019 remains uncertain. According to analysts at Morgan Stanley, the determining factor for the banking system will be a slowdown in economic growth and longer credit cycle. Its is emphasized that banks need to invest in technology to stay afloat. Experts from Bloomberg note that the difference between the bank’s profit and bank’s rising costs should be significant.

ECB policy on interest rates

Credit financing remains the main activity of most European banks, although zero interest rates make it rather unprofitable. Some market participants expect ECB to increase interest rates only in 2020. Fitch Ratings predicts that the economic downturn in the eurozone and low inflation may convince the ECB to keep the rates low and unchanged until the end of this year. Analysts believe that in 2019, banks will need to resort to replacement funds. To support household lending, the regulator may start a new round of long-term refinancing.