Abstract
The global financial crisis has affected the European banking industry, resulting in huge bank balance sheet write-downs, government bailouts and planned reform of the EU financial sector. In this paper we discuss the development and key fundamentals of the European banking industry before and during the current financial upheaval, which is crucial for understanding the implications and future risks for EU banks.
When estimating systemic risk in the EU banking industry, we propose the combination of both top-down and bottom-up approaches, which should make the results more robust. However, multi-billion write-downs of European bank assets are expected until 2010 resulting in a decrease of the Tier 1 ratio and consequently in additional need of capital to restore the capital adequacy requirements of EU banks.
This fact remains a challenge for both bank managers and regulators and should be reflected when forming future financial markets architecture in the EU.