A resilient banking system is crucial to provide for a smooth transmission of monetary policy in response to cyclical fluctuations and to support economic performance over a longer-term horizon. And, indeed, since the onset of crisis, euro area banks have made important progress in strengthening their financial resilience.
At the same time, this newfound resilience will come under pressure if the current slump in bank profitability were to persist going forward. The prevailing low interest rate environment is one factor that dampens profitability prospects.