In the early years it provided the intellectual underpinnings for the project as well as policy advice. For example, it was at the fore in highlighting the long-term benefits for Malta’s small, open economy of EU membership and of an early adoption of the single currency. It also cautioned, however, that these benefits would only materialise if the existing macroeconomic imbalances were addressed through the implementation of appropriate reforms. The Bank also emphasized that these reforms were not only necessary to ensure eligibility for adopting the euro, but also in view of the strong competitive pressures that were emerging in the global economy. On the operational level, the Bank’s monetary policy remained oriented towards delivering a low and stable level of inflation. The fixed exchange rate regime has indeed been a cornerstone in the country’s euro adoption strategy. The policy discipline it promoted had served the country well for over three6 decades as it had come to be recognised that imbalances and structural deficiencies must be addressed through targeted reforms and not through exchange rate adjustment. When, therefore, the time came for the Maltese lira to enter ERM II in May 2005, the Bank’s advice was that the exchange rate should remain fixed throughout the ERM II period. This would ensure continuity and so assure operators that stability would continue to prevail notwithstanding the lira’s participation in a mechanism that permitted relatively wide daily fluctuations.

Research suggests that in a world with multiple capital constraints, e.g., a leverage ratio and a risk-based capital, banks face incentives to do the same thing rather than 7 2/5  BIS central bankers' speeches  specializing in areas where they each have a natural competitive advantage.7 This type of academic work provides a conceptual framework for understanding how optimizing behavior against multiple constraints might lead banks to pursue similar strategies and become more homogenous over time. Interest Rates A second dominant theme over the post-crisis period has been unconventional monetary policy, both in the U.S. and around the world, which has direct implications for the profitability and returns of U.S. commercial banks. The low rate environment experienced through 2015, for example, constrained bank earnings, particularly net interest income earned through traditional banking activities over this period. More recently, current and expected future returns on equity for large banks have improved, in part reflecting higher interest rates and net interest margins, as well as other factors such as lower tax rates and expectations for a stronger economy. Despite recent improvements, earnings pressures over most of the post-crisis period have pushed banks to reassess business strategies. For example, some banks attempted to enhance returns by building capacity and reach in new businesses; some looked to benefit from scale and scope activities by leveraging existing infrastructure, technology, and processes to offer a broader set of services at lower cost; some looked to reduce risk through greater diversification, and others pulled back from activities outside of their core focus.