What happened and why European banks are heading for a standstill. Twice a year, the brains behind the European Central bank (ECB) come together to review how the major banks of the region are looking. Led by the Christine Lagarde, the former chief of the IMF (International Monetary Foundation), last time out the ECB raised alarm at the slow take up of borrowing by small businesses but a lot has changed since then... European businesses have gotten the hang of borrowing and turned to governments and the ECB's deep pockets to cover the damage during the pandemic. Without that governmental support, thousands of businesses would have collapsed. Take away this financial support and it looks like most of Europe's biggest banks don't have the money muscle (or motivation) to provide the support necessary... No money to be made... With long-lasting ultra-low interest rates, banks are struggling to make a dime on loans at the moment. 🤷♂️ With profits dwindling and dividends banned by the ECB earlier in the year, investors are struggling to see too many reasons to back a European bank. While the trading and corporate finance departments of many global banks served up some bulky profits in the 2nd quarter, there are serious concerns over the financial viability of European banks with these record-low interest rates. If banks are to borrow more with a view to lending more, they need a higher share price and valuation to borrow against. A release on the dividend ban from the ECB might bring investors back to the table. Meanwhile... American banks continue to hit the highway out of hell, with Goldman Sachs (+75.45%), Morgan Stanley (+128.35%) and JP Morgan (+54.41%) have all motoring since the end of March and the Dow Jones just hit all-time highs. While the Dow is far from the perfect indicator of America's economic health - tracking only 30 companies based on their share price - it does demonstrate the bullish nature of American investors with the end of the pandemic in sight. One of the main rhetorics of the 2009 financial recovery was the source of capital available to small, medium and large businesses. America quickly supported lenders, while Europe stalled. While there is recognisable fear over propping up zombie businesses, the ECB is stuck between a rock and a hard place... Raise interest rates...and the ECB provides an incentive for banks to lend but fewer want to borrow, halting the recovery in the process.Leave rates low... and push banks to lend. Well, banks just won't. Investors are now expecting (and hoping) that the ECB will take the initiative to lend money to the main banks of Europe at negative interest rates and remove the dividend block. But they're going to have to move fast. | The Takeaway While Goldman Sachs and Warren Buffett have backed America to keep delivering in 2021, there is a consensus gearing up for a correction of sorts. Christine Lagarde herself referenced an impending 'correction' herself and a analysts are talking up a switch out of the tech winners that fuelled the early recovery, and into the consumer staples that have been left to suffer.