##ncy position of eu banks slightly declined, this was largely due to the expansion of lending activities. banks ’ solvency levels nevertheless remained adequate to cope with unexpected losses, comfortably exceeding regulatory requirements. however, banks ’ net interest income continued to fall in 2005 and the first half of 2006. the narrow lending and deposit margins were mostly due to competitive pressures or flat global yield curves. along the positive earning growth and the consequent increase in buffers against potential drawbacks of income growth, we note improvements in the banks ’ risk modelling and risk management systems which have significantly enhanced their loan portfolio. while these developments generally improve banking sector stability, potential risks also need to be considered. in this regard, two recent developments should be subjected to intensified scrutiny. first, the credit cycle might be showing more clear - cut signs of turning. then, the currently appetite for risk - taking might be punished by rising volatility in various financial asset classes. also, the bulk of mortgage loans that have been recently contracted at variable rates might result in increasing credit risk, as more and more households might become unable to service their debts. moreover, the exceptionally low levels of default rates in corporate sector might turn up again. ample stress - testing has been conducted to evaluate the effects of various scenarios of rising interest rates, and the banks seem to be well prepared for this event. however, we should remain vigilant with respect to this risk. second, banking activities involving high direct leverages such as leveraged buy - outs and indirect leverages such as investment in hedge funds are gaining importance. high leverages increase the vulnerability to unexpected events, and the volumes in these types of businesses underscore the significance of this matter. at present, however, the high fees and commissions earned by banks in these activities represent initial buffers against potential risks. now, i would now like to stress two interesting themes mentioned in the report that – in my view – merit special attention. let me begin mentioning how impressive it is that such a broad spectrum of eu institutes have managed to improve profitability. one has to realise that 2006 is already the fourth consecutive year of rising profits. not only the “ usual suspects ” of the banking industry took part in this favourable development, weaker institutes also trended upwards. moreover, it was not only one source of banking income that outperformed in 2005 and the first half of 2006 : lending to households and to the corporate sector grew, as well as income generated by fees and commissions. this

the ink has even dried on declarations of intent. 2. have we got a problem? but why should we even change the economic education situation in germany? have we got a problem? essentially, there are two types of economic education. the first revolves around the individual – internationally, it is known as financial literacy : empowering people to take responsibility for their own financial situation. this strand of economic education is directed at the customers of credit institutions – that is, at borrowers and investors, if you like. the second type of economic education aims to help people understand the economy as a whole, and the target audience here is the general public. a deficient understanding of financial relationships can very easily plunge an individual into misfortune. when several italian banks were wound up a couple of months ago, it meant that quite a number of retail investors lost some of their pension pot, because they had invested in bonds issued by those banks without understanding the inherent risks or being properly made aware of them by the issuers. as it turned out, these individual investors got off lightly because selling these instruments to retail investors was standard practice throughout italy, which was why the italian government quickly came to the rescue and paid out compensation. there are indeed gaping holes in the public ’ s general knowledge, including in day - to - day financial matters. 4 the opinion poll i mentioned earlier reveals that germans feel less financially educated than citizens from most other european countries. 5 former bayern munich and germany goalkeeper oliver kahn once neatly summed up this deficient practical knowledge among his then team - mates when he said : “ when no - one is talking about stocks and shares, just like none of us are doing right now because we are each nursing painful losses, then that ’ s the right time to buy. but if everyone ’ s chattering and saying, ‘ just take a look at what i ’ ve earned, ’ then you might want to think about selling. it ’ s what i jokingly call the 2 / 7 bis central bankers'speeches ‘ team indicator ’, and it ’ s a fantastic counter - indicator. ” 6 but we don ’ t necessarily need to look at germany to see this phenomenon in action. the g20, under german presidency this year, has reiterated its commitment to boosting financial literacy levels worldwide. but what is more crucial still, in my eyes, is an ability to grasp the economy and financial system as a whole. economic education and participatory democracy are two sides of