European bank stocks slipped to a six month low Thursday amid a combination of downbeat assessments for the current quarter from some of the region's biggest lenders, a surge in interbank lending costs and threats of "tough and intrusive" oversight from the region's regulator.

The Stoxx Europe 600 Banks index, the region's sector benchmark, slipped 1.4% to 176.42 points, the lowest level since September, led by another session of declines for Deutsche Bank (DB - Get Report) , Germany's largest lender, and an extended slump for Credit Suisse Group (CS - Get Report) after CEO Tidjane Thiam reportedly described trading in the first three months of the year as "very confused." The Stoxx 600 Banks index has now fallen more than 10.6% from it late January peak.

"January was a strong month, February was strange and March is a bit all over the place," Thiam told an industry event hosted by Bloomberg Wednesday in London.

Credit Suisse shares were marked 2.17% lower during late morning trading in Zurich and changing hands at SFR16.41 each, a move that takes their year-to-date decline to around 5.6%. Deutsche Banks shares, meanwhile, extended yesterday's slump that took the stock to a November 2016 low, falling a further 1.82% to €11.78 each, while domestic rival Commerzbank AG  (CRZBY) fell 4.11% to €11.47 each.

Thiam's comments also come amid a troubling rise in the so-called three-month dollar Libor-OIS rate, a key gauge of risk in interbank lending, which hit a nine-year high yesterday as markets continue to re-price money markets as the U.S. Federal Reserve moves on interest rates and central banks around the world contemplate reciprocal policy tightening.

"LIBOR is still the reference point for the majority of leveraged loans, interest-rate swaps and some mortgages," said Citigroup's Matt King in a research note earlier this week. "In addition to that direct effect, higher money market rates and weakness in risk assets are the two conditions most likely to contribute towards mutual fund outflows."

"If those in turn created a further sell-off in markets, the negative impact on the economy through wealth effects could be greater even than the direct effect from interest rates," King added.

Deutsche Bank's chief financial officer, James von Moltke, made a reference to funding costs during an investor conference in London Wednesday when he cautioned that those, as well a stronger euro would combine for a €450 million hit to the group's beleaguered corporate and investment bank unit.

Earlier Thursday, European Central Bank supervisor Daniele Nouy, who heads the central bank's oversight of European lenders, told a conference in Frankfurt that the Bank will continue to be "tough and intrusive" towards its charges and warned that it will use "all the tools that we have developed in recent years".

"We will also take a close look at remuneration schemes to see whether they are conducive to the sound and prudent management of banks," Nouy added.

European banks are sitting on pile of bad debts worth more than $1 trillion and, according to, are writing them off at a far slower pace than their American counterparts.

"As Europe and its economy regain strength, Europe must seize the momentum and accelerate the reduction of (bad loans)," Commission Vice President Valdis Dombrovskis said last week. "This is essential to further reduce risks in the European banking sector and strengthen its resilience."