Repaired, Rerated, Repriced? Two out of three for European banks

European banks have repaired their fundamentals and improved their ratings, but their credit spreads still carry a declining risk premium that could offer further value outside bank-specific crises.

• Mean RoTE for the European bank sample has moved from post-crisis mid-single digits to low double digits, with roughly three years at similar levels indicating a regime change rather than a temporary rate-driven spike.
• The cross-sectional standard deviation of returns fell from 21.8 in 2012 to 3.6 in 2025, while the share of banks reporting at least one quarterly loss declined from 47.4% to about 8%.
• The proportion of banks consistently earning more than 10% RoTE rose to 38.9% in 2025, compared with less than 10% for most of the previous decade and almost none in 2020; the recovery was broad across European countries.
• Senior bank ratings have steadily migrated toward the A categories, confirming the improvement in capital, asset quality and profitability identified in the operating data.
• The authors' endpoint-beta analysis of risk-off episodes since 2011 finds EUR bank spreads above non-financial spreads in every meaningful episode, with the highest beta during the March 2023 Credit Suisse shock; USD betas are higher still, while the 2025 tariff and growth scare and the 2026 malaise brought betas closer to 1x.

Takeaway: Bank credit remains more volatile than comparable non-financial credit when banks are at the centre of a crisis, but its excess sensitivity is fading in broader market sell-offs; if beta continues moving toward 1x, the remaining premium may represent an opportunity, subject to the risk of future bank-specific stress.