While U.S. banks saw profitability surge in the third quarter and investors are displaying renewed enthusiasm for these stocks and exchange traded funds ahead of December’s Federal Reserve meeting, European banks remain hamstrung by bad loans.

The iShares MSCI Europe Financials ETF (NYSEArca: EUFN) has tumbled nearly 13% over the past six months. EUFN has some advantages, namely no exposure to Greece and that it is not dedicated Eurozone fund as British and Swiss stocks combine for about 43% of the fund’s weight. Developed international stocks and exchange traded funds are pulling ahead with the Eurozone strengthening on improved earnings and Japan finding support from domestic institutional investors.

In Greece, observers are concerned about the capital quality in banks. Greek banks rely on deferred tax assets to shore up the unhealthy parts of their capital, which needs to be replaced. [Tactical Application of Thematic ETFs]

“The European Banking Authority, the banking regulator of the European Union, said on Tuesday that the region’s banks had one trillion euros, or about $1.06 trillion, in so-called nonperforming loans,” reports the New York Times.

In Italy, regulators are currently working to configure a bad debt company of sorts to help Italian banks deal with a rising non-performing loan problem. Italy is EUFN’s seventh-largest country allocation at a weight of 6.7%.