Europe's top banking supervisor says financial institutions burdened by bad loans need to take advantage of the current economic upswing to clean up their finances.

Daniele Nouy, chair of the supervisory division at the European Central Bank, said Wednesday that banks have become more stable since the global financial crisis thanks to stronger oversight efforts.

She said that non-performing loans have fallen by 200 billion euros to 760 billion euros ($937 billion) "but clearly they remain a major problem...They keep banks from financing the real economy."

She said banks should "use the good times to reduce non-performing loans and the good times are now." Europe's economy largely depends on banks to provide the credit that companies need to operate, in contrast to the U.S., where companies often tap financial markets.