the effect of the improvement in macroeconomic conditions and asset prices 4 / 6 bis central bankers'speeches resulting from our monetary policy measures shows that the overall impact of our measures on bank profitability was positive. 14 let me also underline that there remains ample room for a large part of the financial sector to improve profitability by increasing efforts to improve operational efficiency via organic costcutting : euro area banks ’ cost efficiency has not improved since 2010 and, by standard metrics, compare unfavourably with many of their international peers. 15 finally, what about the effects on institutional investors? our latest financial stability review, which was published today, states that over the past few years some institutional investors, including insurance corporations, pension funds and investment funds, have shifted their asset allocation from higher to lower - rated debt securities. 16 such developments need to be closely monitored. to mitigate their risks, these institutions may have to adapt their business models, for instance by continuing to reduce their reliance on guaranteed - return schemes. 17 conclusion let me conclude. the macroeconomic environment is improving. the monetary policy measures put in place in recent years have proven to be effective at sustaining a resilient recovery that is increasingly broad - based across countries and sectors. this recovery in turn contributes to greater financial sector resilience. the breadth of our monetary policy measures and the length of the time they are in place are necessary for achieving our objective of price stability. these policy settings have been made possible because the financial system is more resilient than in the past. today we have a suitable – and active – macroprudential framework to address potential negative side effects. this, together with stronger banks and stronger supervision, has enabled us a longer period of low interest rates unmarked by a build - up of financial stability risks. nonetheless, we remain vigilant. when we introduced unconventional policy instruments in order to secure a return of inflation towards our objective, we were aware that those new instruments could result in somewhat more pronounced side effects than conventional instruments. these side effects have remained contained, but we take them into account in the formulation of our policy, in the sense that we try to minimise them, without prejudice to our ability to achieve our objective. and this is reflected also in the logic underpinning our forward guidance about the sequencing of the withdrawal of monetary stimulus. indeed, as i said in my speech at the ecb watchers ’ conference, 18 in a multi - country monetary union such as

in any event, the papers presented today and tomorrow bring further evidence that the relative importance of banks and markets is a widely used summary indicator of the evolution of financial systems. the changing nature of banking relationships in european finance today is the issue on which i would like to share a few thoughts with you this evening. banks deserve special attention as they are, in continental europe, the main suppliers of credit and financial services to individuals and firms. my argument will develop around two simple questions : • how important is relationship lending in the euro area? • given the current trends in bank structure and competition, is relationship lending on a declining trend, and if so, what could be the consequences? 1. relationship lending in europe by relationship lending, i mean that banks and their customers build up agreements on terms of credit, implying for instance secured access to credit lines at pre - set prices. the bank acquires expertise about the credit - worthiness of its customer by keeping close contact with the management of the firm. for instance, the bankers who sit on the board of many european firms can gain insider information on these firms. the implication of this close link may be that the bank provides the firm with easier access to liquidity. relationship lending is particularly widespread in the euro area, in particular regarding small and medium enterprises ( sme ). given that sme account for about 60 % of private sector employment in the euro area, it is immediately apparent that a reduction in the availability of relationship lending could have an effect on the euro area's economy and on the working of monetary policy. this is particularly relevant to determine the importance of the often mentioned " credit channel of monetary policy ". at the micro - economic level, relationship lending implies that as a tendency the bank insulates its customers from liquidity or interest rate shocks. in case of a drop to its cash flow e. g., a firm can draw on a credit line that has been previously negotiated. likewise, bank lending rates will not necessarily be adjusted in line with market interest rates. while firms that have access to these risk - sharing schemes can be expected to pay some form of an insurance premium to the bank, their decisions on investment, employment and production should be less sensitive to financial shocks. hence, at the macro - economic level, the more widespread relationship lending is, the smoother the business cycle should be. this may contribute to explain why business cycle fluctuations have traditionally been larger in the us and the uk, where relationship lending is limited