for example, the differential between interest rates in interbank markets and bond markets has narrowed drastically, cross - border bond and mutual funds holdings have been increasing very rapidly, a market for private bond issuance has developed within europe and equity price fluctuations have been converging. these factors have induced a rapid growth of the financial markets and have facilitated the direct access of borrowers and savers to the markets. our traditional bank - oriented financial systems are gradually turning into a mixed organisation with substitution possibilities between bank and market - based financial products. the co - existence of and the competition between the two systems for allocating financial flows and risks in the economy should enhance economic efficiency, provided appropriate regulations, monitoring and supervision create the conditions for fair competition. against this background, the banking sector has experienced major changes. consolidation in the banking industry has been substantial. at the same time, banks have diversified their activities through mergers or by creating bank insurance groups. they have also been trading parts of their balance sheet assets and risks through financial markets. in addition, they have expanded their activities abroad, although further developments towards cross - border mergers and the creation of larger europe - wide banks can be expected. so the banking sector is now characterised by higher concentration, stronger competition from foreign banks and direct competition with financial markets. but what precisely will be the future role for banks in this new financial environment? theory and empirical evidence support the view that, as providers of finance, banks have the advantage of being in a position to acquire information on the borrowers and to monitor them thanks to long - lasting bank - lending relationships. this mitigates the effect of asymmetric information and moral hazard problems on the provision of funds. it is especially relevant to newly set up, small and medium - sized enterprises. this debate is not only important for banks, but for corporations themselves. indeed, it is regularly asserted “, - in various countries, not the least in belgium, that sme face increasing difficulties to get bank financing and that this problem could be compounded by the revised capital requirements imposed by the new basel ii agreement. i would like to emphasise two points. first, the new basel rules take expressly into account the specificities of sme. second, recent figures for belgium clearly indicate that, while large corporations have recently shifted to market financing, bank loans to sme keep increasing, and, moreover, are priced to rates which compare rather favourably to the ones applied in the rest of the eurozone.

also insufficiently decisive supervision played an important role. 1 / 5 bis - central bankers'speeches to ensure the stability of the us banking system and prevent a further expansion of the crisis, us authorities had to intervene, securing uninsured deposits, providing liquidity, and ultimately taking control of these banks. subsequently, credit suisse also lost confidence of financial markets and had to be rescued, through a remarkable, publicly supported'private'operation, of which the swiss insisted a la magritte : " ceci n'est pas une resolution. " so what happened to the credo " higher interest rates are good for banks "? let's not exaggerate. the long period ( 2019 - 2022 ) with very low ( and even negative ) interest rates put downward pressure on banks'interest margins, as the cost of a large amount of liabilities reached a floor, while the yield on assets continued to decline. this led to a drop of their net interest margin. banks compensated this negative impact on their profitability by boosting lending volumes, which partly compensated declining margins in the core business of banks, and definitely of co - operative banks : deposit - taking from and lending to the retail sector and small businesses and corporates. but since the second half of 2022, as interest rates increased, there was a significant recovery of the net interest margin. it contributed to a significant increase in bank profitability, to levels not seen since 2014, also driven by a lower than expected repricing of retail deposits in some countries. so, apart from the accidents in switzerland and the united states, the credo of higher interest rates being good for banks remained valid, although the current inverse yield curve is not helpful. good asset quality and low loan losses also contributed to this increase of bank profitability in europe. so far, the higher interest rates do not yet seem to have led to an important increase in loan defaults, notwithstanding rising debt service costs for debtors with variable interest rates or for debtors needing to refinance a maturing loan. the immediate conclusion on the impact of monetary policy tightening on eu banks hence seems to be a message of " so far, so good ". but we might have not yet seen all the consequences of the transition from an ecb deposit facility rate at - 0, 5 % in july 2022 towards 4 % in september 2023, in 14 months'time. transmission to the real economy takes time and is not yet complete.