How European Banks Actually Made Money in 2025
After a decade of ultra-low interest rates, heavy regulation and weak profitability, European banks have quietly returned to centre stage. Higher borrowing costs, stronger balance sheets and a reshaped financial system have restored earnings power to the sector — but in ways that look very different from the pre-2008 era.
This analysis forms part of our ongoing coverage of the European banking sector, which tracks how lenders across the continent are adapting to a new financial environment.
Interest rates are back — and margins matter again
The most important shift in European banking over the past two years has been the return of positive interest rates. After more than a decade in which the European Central Bank kept rates at or below zero, higher borrowing costs have transformed how banks earn money.
When rates rise, banks earn more on loans than they pay on deposits. This gap — the net interest margin — is the core engine of traditional banking. Mortgages, corporate loans, credit cards and overdrafts all generate interest income, and in 2025 these flows are once again meaningful.
Crucially, European banks have been slower to pass higher rates on to savers than to borrowers, boosting profitability. This has been particularly powerful for retail-focused lenders in France, Spain and Italy, where deposit bases are large and relatively sticky.
The quiet return of fee-driven banking
Interest income is only part of the story. Over the past decade, European banks have aggressively diversified into fee-based businesses that are less sensitive to economic cycles.
Payments, card processing, asset management, wealth advisory and insurance distribution now represent a growing share of revenues. These activities generate recurring income without tying up large amounts of regulatory capital.
This is why modern transaction platforms — the infrastructure that moves money between consumers, companies and governments — have become so important to European lenders. As commerce moves online and cross-border payments grow, banks increasingly make money from the plumbing of finance rather than just lending.
Investment banking is quietly booming again
Europe’s largest banks have also rebuilt their investment banking arms. Trading desks, capital markets divisions and advisory teams are once again highly profitable as market volatility, corporate restructuring and geopolitical uncertainty drive demand for financial services.
The revival of European markets has lifted equity and bond trading, while a rebound in mergers and acquisitions is boosting advisory fees. As capital returns to the continent, banks are earning more from underwriting share sales, issuing corporate debt and advising on strategic deals.
This is closely tied to the recovery in global dealmaking, which has unlocked billions of euros in fees for Europe’s biggest financial institutions.
Private credit is changing how banks earn money
One of the most important — and least understood — changes in European finance is the rise of private credit. Instead of holding all corporate loans on their own balance sheets, banks now increasingly originate loans and distribute them to alternative investment funds.
As explained in our analysis of how banks fuel the private credit boom, this allows banks to earn fees while transferring much of the credit risk elsewhere. It boosts returns on capital and allows banks to support more lending without breaching regulatory limits.
The downside is that more of Europe’s credit system now sits outside traditional banking supervision, creating new vulnerabilities if the economic cycle turns.
Regulation, capital and the price of safety
European banks today are far safer than they were before the financial crisis. Capital buffers are higher, leverage is lower and stress tests are tougher. But this safety comes at a cost.
Regulation limits how much risk banks can take and how much capital they must hold against each loan. That pushes lenders towards businesses that generate higher fees with lower capital usage — such as payments, asset management and advisory services — rather than traditional balance-sheet lending.
This is why Europe’s banking model increasingly resembles that of the US, where financial institutions make more money from markets and services than from basic deposit-and-loan banking.
Digital competition is squeezing margins
Competition is intensifying from digital-only banks, fintechs and big technology companies that are attacking the most profitable parts of the banking value chain — payments, foreign exchange, consumer lending and small-business finance.
To defend their franchises, European banks are investing heavily in technology, data and user experience. The battle is no longer just about interest rates, but about who controls the customer relationship — and therefore the flow of fees, deposits and financial data.
Geopolitics and Europe’s banks
European banks are also more exposed to geopolitics than ever. Sanctions, trade disputes, energy shocks and military spending all influence credit quality, capital flows and investment activity.
Rising defence and infrastructure spending, for example, is creating new financing opportunities linked to European defence stocks, while geopolitical risk is increasing demand for hedging, risk management and advisory services.
The bottom line in 2025
European banks in 2025 are more profitable, more diversified and more complex than at any time since the financial crisis. They earn money from interest, fees, markets and credit — but also from the hidden infrastructure of modern finance.
For investors, this creates opportunities in a sector still trading at a discount to global peers. For businesses, it means access to a broader and more flexible pool of capital. And for policymakers, it raises fresh questions about how to regulate a system that no longer fits the old models.
For daily updates on earnings, regulation and market-moving developments, readers can follow the sector in the European Business Magazine newsroom, alongside our coverage of Europe’s financial system and corporate landscape
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