remained rather strong. second, balance sheets of large corporations have improved further, with signs of recovery also extending to the small and medium - sized enterprise sector. third, the balance sheets of euro area banks and insurance companies have also continued to strengthen. at the same time, these positive developments are clouded by the fact that risks and vulnerabilities are also growing ( see slide 12 ). global imbalances have continued to widen. in addition, it cannot be excluded that the global hunt for yield could have extended to riskier segments of financial markets, further accentuating the risk of disorderly market corrections as global liquidity is gradually reduced. high oil prices and rising house prices add to the sectoral risks, creating vulnerabilities to financial institutions ’ future performance. finally, if the credit environment turns worse than currently anticipated, the present level of loan - loss provisioning by euro area banks may prove to be insufficient. overall, with shock - absorption capacities improving, but risks and vulnerabilities rising, the financial stability outlook continues to rest upon a delicate balance. while the probable outcomes could, at this stage, best be described as bi - modal, a positive outcome remains the most likely prospect in the period ahead. thank you very much for your attention.

of higher profits. the chart shows the proportion of euro area banks ’ return on equity – weighted by each country ’ s total banking assets – in 5 % intervals. for example, banks with a roe falling within the 5 - 10 % interval represented approximately 28 % of total euro area banking assets in 2004. the shift in the distribution of roe shows that both the best and worst performing banks had become more profitable in 2004 compared to 2003. against the background of a rather benign credit environment in the euro area, the aggregate flow of provisions as a share of total assets declined further between 2003 and 2004. the stock of provisions in euro terms also fell in 2004 from the previous year. beyond the short - term horizon, the overall low levels of provisioning flows could be questioned as a less benign credit environment could make the situation more difficult for banks. possible triggers for a deterioration include an unanticipated sharp rise in short and long - term interest rates, or an unexpected worsening in the macroeconomic environment. in contrast to the observed changes in provisioning flows as a share of total assets, however, the ratio of provisioning stocks to non - performing loans increased as shown by the chart on the right on slide 8. this mainly reflects an improvement in banks ’ asset quality in the euro area as a whole. it should be kept in mind, however, that the quality of banks ’ assets is sensitive to changes in the phase of the credit cycle. looking ahead, the low level of provisioning flows could become a problem if the current rather benign credit conditions were to deteriorate and the number of non - performing loans to increase. given that lending to the household sector, has, for several years, been the most rapidly growing line of business for banks, the continuing growth of exposures to the household sector is a potential source of increasing credit risk. however, the quality of credit granted to households tends to be generally higher than that extended to the corporate sector. in 2004, the last full year for which figures are available, profitability in the euro area insurance industry improved further, with the exception of the re - insurance sector ( see slide 9 ). the strengthening of financial positions was mainly driven by strong underwriting results. capital bases improved in both the non - life and reinsurance industries in 2004, whereas solvency ratios in the life insurance industry remained broadly unchanged. the chart on the left on slide 9 shows that there continue to be divergent developments among the various sectors of the industry