ongoing trends. one is the increasing convergence among euro area countries across a range of indicators. the dispersion of both employment and gdp growth between euro area countries is now at record low levels. the previous divergence in credit conditions has also largely disappeared. for very small loans – which are a proxy for the financing conditions facing smes – the spread between vulnerable and less vulnerable countries has fallen from 170 basis points in mid - 2014 to 2 basis points today. for the first time since 2009, loans to firms are moving into positive territory in all major euro area economies. and demand for loans by firms, which at this time last year was still negative in several vulnerable countries, is now positive across the whole euro area. 6 the other trend is the growing resilience of the financial sector. the total capital ratio of significant banks has increased by more than 170 basis points since early 2015. their return on equity has risen from 4. 4 % at the end of 2015 to 7. 1 % at the start of this year, even as their leverage ratios have declined. all banks have benefited from the upward trend in returns on assets since the start of our monetary policy easing in 2014, although in some cases starting from low levels. clearly this trend hides some variation among banks, which is largely driven by differences in their business models. as regards bank profitability, ecb research finds little evidence that our monetary policy is currently doing harm. net interest income has remained quite stable over the past two years. if there are any negative effects of low rates on net interest income in the future, they should be largely offset by the positive effects of monetary stimulus on the other main components of profitability, such as the quality of loans and therefore on loan - loss provisions. 7 low - for - long interest rates might contribute to a build - up of financial risks, and this has to be carefully monitored. at present we do not see systemic risks emerging at the euro area level. if there are some local pockets of risk, the defence lies in micro - prudential and macro - prudential policies, not changing area - wide monetary policy. furthermore, in such an environment any backtracking on financial regulation would be a mistake, as the pre - crisis experience has shown. the outlook for inflation and the ecb ’ s recent policy decisions 2 / 5 bis central bankers'speeches despite this progress on the real side of the economy, from a monetary policy perspective our task is not complete, as we

suggest that e - commerce is depressing inflation in the euro area today – at least to extent that we can measure it. 9 the same is true for “ global slack ”. 10 in fact, as the global economy recovers, the foreign output gap is moving in the same direction as the euro area output gap. 11 in sum, we are not yet at a point where the recovery of inflation can be self - sustained without our accommodative policy. a key motor of the recovery remains the very favourable financing conditions facing firms and households, which are in turn heavily contingent on our policy measures. an ample degree of monetary stimulus remains necessary for underlying inflation pressures to build up and support headline inflation over the medium term. this is reflected in the monetary policy decisions that we took last month. these aim to signal 3 / 5 bis central bankers'speeches our growing confidence in the euro area economy, while also acknowledging that we must be patient and persistent for inflation to return sustainably to our objective. we decided to reduce the pace of our monthly asset purchases from €60 billion to €30 billion, while extending the horizon of those purchases until end of september 2018, or beyond, if necessary, and in any case until we see a sustained adjustment in the path of inflation. this recalibration of our asset purchases, supported by the sizeable stock of acquired assets and the forthcoming reinvestments, and by our forward guidance on interest rates, helps to maintain the necessary degree of accommodation and thereby to accompany the economic recovery in an appropriate way. in this sense, the recent decisions follow the same logic as those in december last year when we reduced the pace of purchases from €80 billion to €60 billion. our monetary policy influences long - term yields through both its main components : by compressing the term premium, and by anchoring the expected path of policy rates in the future. by accumulating a portfolio of long - duration assets, the central bank can compress term premia by extracting duration risk from private investors. via this “ duration extraction ” effect, the central bank frees up risk bearing capacity in markets, spurs a rebalancing of private portfolios toward the remaining securities, and thus lowers term premia and yields across a range of financial assets. in the past, since the crisis had heightened risk perceptions, the eurosystem had to purchase very sizeable amounts per month to foster a certain impact on the term premium and on longterm yields