European Union banks have weathered the economic slowdown well with few banking problems, European Central Bank President Mr Jean-Claude Trichet said today.
In a speech prepared for a conference organised by German savings banks, Mr Trichet made no comment on current economic conditions or monetary policy ahead of the ECB's rate-setting meeting tomorrow.
"Since 2000, EU banks have been confronted by an extraordinary combination of adverse financial market shocks against the backdrop of a slowdown in the economy," Mr Trichet said in the prepared remarks.
"For central banks and banking supervisors, the resilience of the banking sector of course is very good news," he said.
A year ago, there were widespread concerns that Germany's banking system was running into problems as the stagnant economy struggled to recover. But an ECB study at the time showed that most banks had sufficient capital and concerns have since retreated.
But Mr Trichet said in his prepared text that the banking system did face overcapacity.
"Several EU countries are still faced with excess capacity in their banking systems and will have to be further reduced over time," he said.
Another ECB policymaker, Bank of Spain Governor Jaime Caruana, who also heads the Basel banking committee that is overhauling capital standards for banks worldwide, last week urged caution by Spanish banks in granting credit because interest rates will have to rise at some stage.
However, that is not expected any time soon. The ECB is widely expected to keep interest rates unchanged at 2 per cent when it meets tomorrow.
While most economists say its easing cycle has ended and rate hikes are not expected until next year, a minority is still calling for a further easing this year.