The European Central Bank on Wednesday sought to counter claims by eurozone banks that negative interest rates are hurting their profitability.
ECB executive board member Benoit Coeure told a financial congress in Frankfurt that "we need to qualify the narrative that banks' challenges flow largely from our monetary policy."
Coeure conceded that "the business environment confronting the European financial sector today is evidently challenging."
Banks' earnings were weak and with cost-cutting and rationalisation ongoing since 2008, further cost savings were harder to achieve.
Against this backdrop, "a concern has built up that, as central banks lower interest rates into negative territory, the impact of monetary policy on banks is becoming increasingly adverse," Coeure said.
As part of a long and broad offensive to push inflation in the single currency area back up to levels that it considers to be healthy for economic growth, the ECB has slashed its key interest rates to new all-time lows, with one of them, the so-called deposit rate, entering negative territory.
That means that the ECB effectively charges banks for parking their cash with it overnight.
So far, banks have largely steered clear of passing on those charges to clients.
But banks and insurers regular complain that the current environment of extremely low interest rates makes it difficult for them to offer attractive yields to customers.
"Let me underline that we are well aware of this issue," Coeure insisted.
"We are monitoring it on a regular basis and we are studying carefully the schemes used in other jurisdictions to mitigate possible adverse consequences for the bank lending channel," Coeure said.
Nevertheless, many banks had been able to more than offset declining interest revenues with higher lending volumes, lower interest expenses, lower risk provisioning and capital gains, the ECB official argued.
Overall, euro area banks' aggregate net interest income had actually increased last year, Coeure said.
Furthermore, "negative interest rates are complementary to our asset purchase programme, which has had clearly positive effects on asset prices, credit risk and intermediation volumes. This has to be set against the direct costs from our measures to net interest margins," he said.
Another question to be considered was the potential costs for the financial sector if monetary policy had not responded, Coeure said.
"We have seen from the recent sharp fall in bank equity prices that the sector is highly sensitive to a weaker-than-expected economic outlook," he said.
"In that context, our commitment to our price stability mandate is vital to anchor expectations of nominal growth. Those who call for a less accommodative monetary policy have to ask themselves what would be the impact on banks' lending volumes and loan-loss provisions if output were stagnant and prices falling," Coeure said.