European Central Bank president Mario Draghi today poured cold water on the idea the bank was actively considering moving deposit rates into negative territory.

Speaking at the Banking Congress in Frankfurt, Mr Draghi stressed the need to keep interest rates low.

“I understand the concerns about a prolonged period of low returns on savings. But it is important to understand that interest rates are low because the economy is weak,” he said.

“If we raised rates, we would further depress the economy, people would lose their jobs, and then their savings would be lower for longer.”

Mr Draghi also called for the early introduction of ‘bail-in’ rules to make creditors share the costs of winding up or rescuing euro zone banks.

He urged banks to use the time before bank test results are published late next year to increase their capital base but said that joint European backstops also needed to be in place.

The message underscores the ECB’s desire that a pan-euro-zone safety net be in place for the health checks but puts it on a collision course with Germany, which wants every country to individually foot the bill for repairing their banks.

Turning to plans to found an authority to wind down failing banks, Draghi said that it would be better to have mechanisms for bondholders to play a role in bank bailouts available right from the start of the single resolution mechanism.

“I therefore support implementing the bail-in tool well before 2018. The sooner, the better,” he added.

European authorities will next year stage a series of exercises to test the ability of its lenders to withstand a future crisis without resorting to taxpayer-funded bailouts.

The tests are billed as the most rigorous assessments the banks have ever had, designed to remove doubts about their health after botched EU stress tests in 2010 and 2011 which failed to reveal major problems at some lenders.

ECB policymakers have said the coming round is the last chance to instil confidence in the currency area’s banking sector.

Today Mr Draghi said banks had already made progress in strengthening their balance sheets by increasing capital and provisions, and urged them to continue.

“In this sense, the exercise is already producing results - and I encourage banks to continue. Given the improvement in market conditions, market-based solutions should be more feasible than in the recent past,” he said.

But Mr Draghi added that in case all banks cannot raise enough private-sector funds, public funds, also at the European level, should be reserved for the purpose.

“If private sector solutions cannot be achieved in a timely and realistic manner, there is also a responsibility for the public sector,” Mr Draghi said.

“To ensure the credibility of the exercise, we need clear public backstops at the national and European levels.”

Draghi also said that the ECB and the European Banking Authority, which will conduct the bank stress tests after the ECB's balance sheet assessment, would publish the parameters to be used in the stress tests by end-January. (Reuters)