1. 9 % in march 2024. banks'profitability has also improved lately, as the net interest income of most lenders benefited from the increase in interest rates. recall that, at some point in time over the previous decade, the average return on equity ( roe ) for eu banks was barely positive. with march 2024 data, the average roe for eu banks reached 10. 6 %. finally, eu banks enjoy ample liquidity with a solid deposit base and full access to the wholesale and capital markets. in march 2024, the average liquidity coverage ratio ( lcr ) of eu banks was 161. 4 %, well above the supervisory minimum of 100 %. the positive macroeconomic environment is also supporting the financial fundamentals of eu lenders. however, risks to financial stability have been rising : geopolitical risk remains high for some time now, since the russian invasion of ukraine, and is further fuelled by the tensions in the middle east. political developments in the us and the eu are also creating uncertainty. geopolitical risk is an exogenous risk factor which could potentially have immense repercussions on the banking sector. a reassessment of risk premia following a sudden shift in market sentiment could put asset prices under strain with potential implications for the sector of non - bank financial institutions ( nbfi ). past events showed us that the non - bank financial sector can amplify worsening markets conditions through forced asset sales to 3 / 4 bis - central bankers'speeches address margin calls or potential liquidity needs. risks and vulnerabilities in the non - bank financial sector could essentially create spillovers to banks ( via loans, securities, etc. ) and to the real economy. the recent rise in interest rates alongside high inflation rates put the balance sheet of some firms and households under strain. against this backdrop - and despite the recent drop in the interest rates -, a deterioration in asset quality and a rise in loan loss provisions for european lenders with a time lag cannot be ruled out. in addition, weakening economic growth along with high interest rates could weigh heavily on the demand for new loans and the implementation of banks'business plans. note that the improved profitability following the rise in interest rates masked structural deficiencies in many banks, such as in terms of cost efficiency and digitalisation. the increase in borrowing costs over the past few quarters has led to a cooling of the real estate market in the euro area, notably the

savings and investment by the private sector and government. it should not be surprising, then, that the nominal exchange rate cannot be relied upon to bring about lasting adjustment. such adjustment requires changes in an economy ’ s structure, and, as i have argued, membership in a monetary union can encourage those changes. iii. conclusions i have argued that ways of thinking about monetary union have evolved considerably from the early days of the literature on optimum currency areas. developments in modern macroeconomics recast the goals of monetary policy. the focus nowadays on price stability and the creation of the conditions necessary to support growth and employment changes the balance of the arguments about the cost of giving up an independent monetary policy. provided that the monetary policy framework at the union level delivers price stability, there is little to be lost from transferring monetary policy to the union level. the success of the euro area has demonstrated that one size can fit all. let me briefly mention three pieces of evidence which support this. first, inflation dispersion has declined and has been around 1 percentage point since the second half of 1999. this compares favourable with inflation dispersion across a monetary union of similar size, the us. second, the decline in inflation dispersion has not been at the expense of higher growth dispersion. growth dispersion has remained close to its historical average of around 2 percentage points and, if any trend is discernable, it is a downward one. finally, business cycles appear to have become more correlated. the evidence from almost 10 years of monetary union in europe points to a euro area which is endogenously adapting itself to become an optimum currency area. the euro area provides clear evidence that the criteria identified in the earlier literature do not need to be exogenously in place prior to monetary union. i do not want to leave you with the impression, however, that euro area policy - makers can sit back and relax because all the necessary work has been done. after all, i began this lecture by remarking that the adoption of the euro created new challenges for economic policy. the adoption of the euro was neither the beginning nor the end of an optimum currency area among european countries. the process is ongoing, and much more needs to be done, especially in regard to structural policies, to ensure that the euro area becomes a more dynamic force for growth in the global economy. it is my view that the experience of the euro area to date only serves to highlight the fact that a currency union