ECB chief: parts of Europe banking system ‘face challenges’

FRANKFURT – European Central Bank head Mario Draghi says some eurozone banks “face challenges” but that the system is more resilient due to oversight that was strengthened after the global financial crisis.

Draghi said Monday that banks were in a position to bring down the amount of bad loans burdening their finances “in an orderly manner over the next few years.”

His comments in the European Parliament follow a week of violent swings in the stock prices of major European banks including Deutsche Bank and Societe Generale. Draghi said some banks faced challenges from litigation and restructuring costs as well as working off soured investments.

“Clearly, some parts of the banking sector in the euro area still face a number of challenges,” Draghi said at a meeting of the parliament’s economic and monetary affairs committee in Brussels.

The ECB carried out a wide-ranging check of bank finances in 2014 and Draghi said that had forced them to strengthen their finances.

The sharp drops in stock prices reflected fears banks might be exposed to risks in commodity producing markets, companies and countries. Commodity prices have dropped amid fears about the health of the global economy.

Draghi said the situation was “amplified” by perceptions that banks may have difficulty adjusting to an economy with lower growth and lower interest rates. Low interest rates, in part the result of central bank policies, have squeezed bank earnings by narrowing the difference between the rate at which they borrow and the rate at which they lend.