In light of new regulations and stiffer penalties, the European Union is calling on banks to revamp their business practices to create a more sustainable model, a Reuters report said.

The EU’s banking, insurance and market regulators released a joint report on current and emerging risks that threaten the financial stability of EU member states. Supervisors across the 28-country EU will be required to closely monitor these risks.

The report said that banks must revisit their business models to ensure they continue to provide financial services such as establishing market in stocks and bonds to the economy that help companies create more funds.

"Fundamental questions remain about the sustainability of some banks' business models in search for sustained and solid profitability, especially for those which still have not yet adapted to an environment of prolonged low interest rates," the report said. "Expectations are that some banks will need to further change their business models to those which have proved successful, once the regulatory framework has been implemented,” the report says. 

Another concern, according to report by  the European Securities and Markets Authority, the European Insurance and Occupational Pensions Authority and the European Banking Authority, is the growing number of misconduct that occurs at lenders.  There have been many cases where financial institutions have been fined billions for attempting to rig currency markets and interest rate benchmarks. UBS has been placed in the limelight recently amid allegations that it attempted to rig foreign exchange markets.

The size of fines have increased tremendously in recent years, making it difficult for supervisors to decide how much capital financial institutions should keep, said the Reuters article. 

“Despite numerous actions already taken by regulators and supervisors, both from prudential and consumer protection perspectives, recent misconduct incidents indicated that additional measures are needed to address and prevent  conduct of business risks properly," the report said.

 

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