The continued low interest environment in key markets such as Europe, the U.S. and the U.K. is a "major source of concern", according to Felix Hufeld, the president of the German financial regulatory authority.
Alluding to the results of a recent survey, the authority over which he presides carried out alongside staff at Germany's central bank, the Bundesbank, Hufeld described the effect on domestic banks.
"The impact is massive and is creeping into the balance sheets more and more. The longer it continues, the higher the risk for a change of interest rates is increasing as well," he warned, speaking from the Handelsblatt annual banking summit in Frankfurt on Thursday.
His wariness comes despite his acknowledgment that the banking system has become much more solid than it was 10 years ago when the financial crisis broke out.
"Both the amount as well as the quality of capital has been massively increased. Risk management procedures have been improved, governance procedures have been improved. Remuneration has been curbed – so all sorts of things - a very wide range of things have been done," he explained before sounding a note of caution.