Low interest rates are justified by the euro zone's current economic conditions and their impact on banks' profitability should not be exaggerated, ECB policymaker Francois Villeroy de Galhau said.
The European Central Bank has said it is considering the need to mitigate the impact of its negative deposit rate on lenders' profits.
"Maintaining a low interest rate environment is completely justified and necessary in light of the economic situation in the euro area. The issue of low rates' impact on banks should neither be ignored nor blown out of proportion," Villeroy said.
"It would be an exaggeration ... to say this is the only reason profits are under pressure: monetary policy also has favourable effects for banks, including a reduction of the cost of risk and an increase in lending volumes," Villeroy said.
Other than low rates, banks - as well as insurers - were facing an "existential challenge" in the form of transforming their businesses to interact with clients digitally while investment banks were losing market share to U.S. rivals due to a lack of critical mass, added Villeroy.
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