In a bid to revive economic growth and inflation in the euro zone, the ECB in September cut rates deeper into negative territory, bringing its deposit rate to -0.5%.
Mustier, speaking at a conference in Brussels in his capacity as chair of the European Banking Federation, said the ECB should do more to make its monetary policy more effective.
Negative rates "should not stop on the banks' balance sheets," but should be passed over to the wider economy in a more efficient manner, Mustier said, calling for a general application of charges on cash deposits.
"To optimise transmission mechanisms, it would be important the ECB tells banks to pass negative rates to clients," Mustier said, adding that savers with less than 100,000 euros ($110,000) should be spared negative rates.
Banks are currently free to charge for their cash deposits, but most avoid doing so, fearing depositors would transfer their savings to other lenders, depriving them of a key source of funding.
Mustier also called on the ECB to buy banks' bonds as part of its stimulus programme, which is currently limited to government and corporate debt.
"It would make a lot of sense for the ECB to buy banks' liabilities," Mustier said, noting that this would significantly contribute to lower lenders' funding costs, which in turn would reduce financing costs for firms and households.
He also urged an assessment of the cost of regulation for EU banks, which he said faced a regulatory burden heavier than their U.S. competitors.
(Reporting by Francesco Guarascio; Editing by Hugh Lawson)
