edgar meister : eu banking sector stability speech by mr edgar meister, member of the executive board of the deutsche bundesbank and chairman of the banking supervision committee, on the occasion of the presentation of the eu banking stability report, frankfurt am main, 7 november 2006. * * * in my capacity as chairperson of the banking supervision committee, i am very pleased to present to you the report entitled “ eu banking sector stability ” published by the ecb today. as always, the bsc ’ s eu banking sector stability report examines the implications of recent macro - economic and financial market developments for the performance of the banking sectors of the 25 eu member states. let me draw your attention to a special feature of this year ’ s report : since the implementation dates of the new international financial reporting standards ( ifrs ) are different across the eu, the banking data for the year 2005 were not – as in previous years – aggregated at the eu level. instead, they are grouped according to whether they have already adopted the new standards or still follow the old national accounting regimes, based on local - gaap. for 2005 data, eu total banking assets are roughly equally split between the two groups. although the accounting differences may complicate the analysis, their impact on the overall assessment proved to be rather minor. now i would like to turn to the main findings of this report. in brief : the resilience of the eu banking sector has further improved in 2005 and the first half of 2006, adding to the trend in place since 2003. the most obvious cause of this enhanced stability is higher earnings. profitability increased for eu banks across all size groups. the return on equity ( roe ) reached roughly 15 %, an increase of around three percentage points from 2004 figures for both groups ( those who adopted ifrs and those who didn ’ t ). all in all, the banks benefited from the favourable economic environment and from the generally buoyant financial market conditions. in addition, the impairment charges ( in the ifrs terminology ) or provisions ( according to local gaap ) decreased further. the strengthening of profitability showed no signs of abating in the first half of 2006 as the roe for the set of large banks also increased three percentage points to stand just under 21 %. the main drivers of the further improvement in profitability were strong lending growth both to households and to the non - financial corporate sector, fees and commissions income and trading revenues, as well as continued cost containment. although the solve

at home draws investors ’ attention by means of drastic deregulation, or when new markets or goods and services are cultivated through firms ’ innovative efforts. as firms ’ efforts bear fruit, the public ’ s expectation for rising corporate profits and household income strengthens, and this will eventually lead to higher demand for the funds. in this way, accommodative financial conditions will be able to fulfill their original purpose of stimulating aggregate demand to the maximum extent. once such a virtuous cycle manifests itself, the aggregate supply and demand balance improves, and it is likely that the inflation rate will start to rise. while keeping such a mechanism in mind, on a number of occasions, i have please see masaaki shirakawa, “ the bank of japan ’ s efforts toward overcoming deflation ” ( speech at the japan national press club in tokyo ), february 17, 2012. http : / / www. boj. or. jp / en / announcements / press / koen _ 2012 / data / ko120217a1. pdf bis central bankers ’ speeches been emphasizing that in order for japan ’ s economy to overcome deflation and return to a sustainable growth path with price stability, we need two things : first, having a wide range of economic agents exert efforts to strengthen the economy ’ s growth potential ; and second, support from the financial side. in strengthening the growth potential, firms play a pivotal role. at the same time, it is important to provide the grounds for letting them meet the challenge to cultivate new markets. based on such recognition, the bank has embarked on a highly extraordinary measure for a central bank since june 2010 : that is, the establishment of the “ fundprovisioning measure to support strengthening the foundations for economic growth ” ( chart 23 ). under this measure, the bank provides long - term funds at low rates to financial institutions carrying out lending or investment in support of strengthening the foundations for japan ’ s economic growth. the bank strongly believes that such a measure plays a catalytic role in allowing financial institutions to proceed with their voluntary efforts. in june 2011, the bank introduced a special scheme, as part of its overall support measures, that established a new line of credit for equity investments and asset - based lending ( abl ), which, unlike traditional lending, uses assets that are closely tied to firms ’ businesses – such as their inventories, equipment, and machines, as well as accounts receivables – as collateral.