This paper analyses the determinants of net interest margin during the period 2008−2014 in the Euro Area. The starting point of the analysis is the premise that this variable is a gauge of financial institutions’ health and stability. In particular, since the outbreak of the global financial crisis, difficulties in achieving sustainable levels of profitability, mainly due to the vulnerable margins from the banks’ traditional activity, have significantly increased the fragility of the European banking system. Besides considering the main bank-level drivers affecting the net interest margin such as market power, capitalization, interest risk and the level of efficiency, we explicitly account for the effects of regulatory and institutional settings. The results show a persistence in the vulnerability of the banks’ sustainable profitability, even though this negative trend has been partly mitigated by the European Central Bank (ECB)’s recent monetary policies. The increase in non-traditional activities as well as the heterogeneous efficiency levels characterizing banking systems across the Euro Area, where operating costs remain generally high, have significantly contributed to the slowdown in bank margins from traditional activity. Finally, the regulatory environment is an important driver of the net interest margin, which remained lower in countries with higher capital requirements and greater supervisory power.