Mario Draghi’s public scolding of Europe’s lenders this week matters more than what he did for them.

Banks in the region have long complained of the squeeze negative interest rates are putting on their profits — upending their traditional business model of borrowing money for the short term to lend to clients in the long run. But there’s little they can do to ease the pain: Charging ordinary citizens to hold their deposits, for example, is controversial and may even be illegal. 

As he cut rates deeper into negative territory this week, the president of the European Central Bank showed that he had listened to these complaints, announcing a package of measures to spare banks some of the pain of negative rates. But he accompanied this with a blunt message: Banks need to get their own houses in order.

While there’s a growing acceptance that the industry will be hurt by a prolonged spell of low rates, there’s a danger that this becomes an excuse for executives to shrug their shoulders and accept that returns won’t improve. That’s wrong.

Draghi didn’t mince his words on what bank executives could be doing instead of venting their anger. Costs at some European banks are “completely way off,” he said, without identifying any individual firm. And banks should be investing more in technology. He’s right on both counts.

While there’s significant divergence between lenders, expenses ate up more than 70% of revenue at some of France’s biggest banks last year, and even more at their German counterparts — levels that are not sustainable. Deutsche Bank AG’s latest (and long overdue) turnaround effort should see its cost-income ratio finally fall to a more sustainable 70% in three years from closer to 94% last year. Yet Chief Executive Officer Christian Sewing has been among the most vocal on the consequences of negative rates.

France’s Societe Generale SA is studying ways to save a further 600 million euros at its Paris operations. Italy’s UniCredit SpA is considering a further 10,000 job cuts. More than a decade after the financial crisis, banks — when pushed — still seem to be able to find excess capacity to cut.

Draghi also had some advice for what should be getting executives more excited: technology. Hampered by old, often overlapping, systems that continue to soak up expenses, lenders have been slow to jump on the digitization bandwagon.

They have also found themselves at the center of money-laundering scandals that are costing them in fines. Technology can help them: Dutch banks are teaming up to build algorithms to prevent the flow of illicit funds, a move other lenders could copy.

To be sure, investing in technology and cutting fat comes with upfront costs that could further erode short-term profit, hurting investors. Labor opposition has also proven difficult to overcome. When Deutsche Bank and Commerzbank AG weighed a merger earlier this year, unions made it very clear they weren’t in favor of the tens of thousands of job cuts that would have been needed.

But this medicine is necessary — for the sake of all of us. We may be approaching a level at which the industry’s meager profitability forces some European lenders to scale back, a problem in a region where companies still rely on bank lending rather than the bond market for the bulk of their borrowings. Short-term loans show signs of weakness, Draghi warned on Thursday. That’s a worrying prospect.

The departing president’s latest message could not have been clearer. Industry leaders should listen.

To contact the author of this story: Elisa Martinuzzi at emartinuzzi@bloomberg.net

To contact the editor responsible for this story: Stephanie Baker at stebaker@bloomberg.net

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Elisa Martinuzzi is a Bloomberg Opinion columnist covering finance. She is a former managing editor for European finance at Bloomberg News.

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