Bank shares across Europe have slumped, as investors digested the results of health checks on major lenders and the impact of low interest rates on their long-term health.

Shares in Germany’s Commerzbank hit record lows after a warning that profits would be down this year. This compounded the findings of stress tests by the European Banking Authority watchdog last week, which left the Frankfurt-based institution in the bottom half of the results from health checks on 51 major lenders.

The worst performer in the stress tests, Italy’s Banca Monte dei Paschi di Siena (MPS), suffered a 16% in its shares on Tuesday and Italy’s biggest bank Unicredit fell 7% after heavy losses the day before.

The pan-European bank stock index was down 3.5% as the prospect of prolonged period of low interest rates makes it more difficult for banks to make profits.

The Bank of England will conduct a bank industry assessment this year, which prompted the Adam Smith Institute – a leading thinktank – to publish a report calling for the abandonment of the “worse than useless” stress tests unless changes can be made.

Kevin Dowd, professor of finance and economics at Durham University, and author of the report, said: “As the EU banking system goes into a renewed crisis, the UK banking system is in no fit state to withstand the storm. Once contagion spreads from Italy to Germany and then to the UK, we will have a new banking crisis but on a much grander scale than 2007-08.

“The Bank of England is asleep at the wheel again, and we will be back to beleaguered banksters begging for bailouts – and the taxpayer will be ripped off yet again, but bigger this time.”

The Bank of England declined to comment on the report.

Banks have amassed more capital in the past eight years and Bank of England governor is a strong supporter of the tests, which were introduced after the 2008 crisis that left Royal Bank of Scotland and Lloyds Banking Group needing £65bn worth of bailouts.

“All our major banks and building societies passed last year’s stress test which included losses twice those incurred during the global financial crisis,” Mark Carney said last month.