##ntial supervision of individual financial institutions is undertaken. this may occur, for example, if the risk profiles of the institutions in question show a high degree of similarity, making the system especially vulnerable to a particular type of shock. supervision at the micro level, therefore, has to be complemented with a macro analysis of the interlinkages between different segments of the domestic financial sector and its links with the payment system, the rest of the economy and its counterparts abroad. on the other hand, it is also true that the bank ’ s macroprudential analysis may not provide precise information on individual institutions, particularly those that may be on the brink of insolvency. here, the authority, through regular inspections of individual service providers will have a more in - depth knowledge of the health of single intermediaries and market segments, including those which play a peripheral role in the monetary policy transmission process and with which the bank ’ s relationship is, at least on a one - to - one basis, rather distant. in this sense, the authority also contributes to the soundness of the bank ’ s counterparties. it is also the authority which ensures that only sound institutions are licensed to enter the maltese market. furthermore, confidential supervisory information available to the authority could be useful to the bank as an input into its overall analysis of the financial system, enabling it to respond to liquidity and related constraints that could set off negative ripple effects. the potential for synergies between the two institutions prompted them to sign two memoranda of understanding in 2002 to provide for enhanced co - operation, including through the establishment of a standing committee. this cooperation framework has contributed to the general soundness and stability of the financial system. the profitability of our banks, for example, has remained stable with an average return on assets after tax of 0. 8 % in 2003, the same level as that recorded by european banks. furthermore, bank liquidity and capitalization levels have both remained strong. liquid asset holdings as a percentage of short - term liabilities were close to 53 % at the end of 2003, compared to a minimum threshold of 30 %. meanwhile, the banks ’ aggregate capital adequacy ratio, defined as the ratio of own funds to risk - weighted assets, currently stands at 23 %, compared to a minimum of 8 %. in the insurance sector and collective investment schemes steady growth continues to be registered. this positive performance notwithstanding, there remains scope for further improvement in the framework through which the

be to preserve macroeconomic stability while maintaining the soundness of the financial system as this has been key to address adverse shocks in the past as well as to create a solid basis to achieve a sustainable economic growth. as a conclusion, allow me to summarise with the following points : as we have and will be discussing these days in different forums, our economies are, again, vulnerable to external shocks arising from other regions. even though we have made significant improvements, particularly regarding the strengthening of the economic fundamentals of our economies, which is reflected in a lower volatility of the main macroeconomic prices including lower inflation rates, bis central bankers ’ speeches strengthened financial systems, more sound fiscal balances, improvements in productivity and so on, we are not exempt, now and in the future, from experiencing these kind of shocks that at the end affect not just economic and financial variables but most important the well being of our populations. as policy makers, we have the responsibility to preserve those economic fundamentals and to come up with policy actions that may reduce their negative impact, or even better that could make our economies less vulnerable to their effects. in this context, i am glad to be here and looking forward to the discussion of our challenges as we may come up with specific policy actions that may be needed now or in the future to address these challenges. thank you very much for your attention. bis central bankers ’ speeches