This will require interest rates to remain low for an extended period of time. As such, it is urgent that, in parallel, steps be taken to address the other challenges depressing profitability: tackling legacy NPLs, responding to structural change, providing regulatory clarity. Such a comprehensive approach means both private actors and other policymakers must play their part.
Let me address these points in greater detail. Monetary policy effectiveness and the state of the domestic banking system In a predominantly bank-intermediated financial system like the euro area’s, monetary policymakers have an inherent interest in the position and prospects of the domestic banking system. This interest has three dimensions: the efficiency of monetary policy transmission; economic shock-absorption; and longer-term macroeconomic performance.