be difficult to identify in their early stages. moreover, addressing the pervasive problem of pro - cyclicality in the financial system will require efforts across financial sectors. to help address these issues, the administration has proposed the establishment of a financial services oversight council composed of the treasury and all of the federal financial supervisory and regulatory agencies, including the federal reserve. the board sees substantial merit in the establishment of a council to conduct macroprudential analysis and coordinate oversight of the financial system as a whole. the perspective of, and information from, supervisors on such a council with different primary responsibilities would be helpful in identifying and monitoring emerging systemic risks across the full range of financial institutions and markets. a council could be charged with identifying emerging sources of systemic risk, including : large and rising exposures across firms and markets ; emerging trends in leverage or activities that could result in increased systemic fragility ; possible misalignments in asset markets ; potential sources of spillovers between financial firms or between firms and markets that could propagate, or even magnify, financial shocks ; and new markets, practices, products, or institutions that may fall through the gaps in regulatory coverage and become threats to systemic stability. in addition, a council could play a useful role in coordinating responses by member agencies to mitigate emerging systemic risks identified by the council, and by helping coordinate actions to address procylicality in capital regulations, accounting standards ( particularly with regard to reserves ), deposit insurance premiums, and other supervisory and regulatory practices. in light of these responsibilities and its broad membership, a council also would be a useful forum for identifying financial firms that are at the cusp of being systemically important and, when appropriate, recommending such firms for designation as systemically important. finally, should congress choose to create default authority for regulation of activities that do not fall under the jurisdiction of any existing financial regulator, the council would seem the appropriate instrumentality to determine how the expanded jurisdiction should be exercised. a council could be tasked with gathering and evaluating information from the various supervisory agencies and producing an annual report to the congress on the state of the financial system, potential threats to financial stability, and the responses of member agencies to identified threats. such a report could include recommendations for statutory changes where needed to address systemic threats due to, for example, growth or changes in unregulated sectors of the financial system. more generally, a council could promote research and other efforts to enhance understanding, both nationally and internationally,

up ; corporate profitability is increasing ; and financing conditions remain extremely favourable. finally, housing markets are now moving into an expansionary phase in most euro area countries, which should also support consumption going forward via the wealth channel. as a result, we now see the economic recovery continuing at a moderate, but steadily firming pace, and broadening gradually across sectors and countries. sentiment indicators suggest that the cyclical recovery may be gaining momentum. consequently, our latest staff macroeconomic projections foresee annual real gdp increasing by 1. 8 % in 2017, 1. 7 % in 2018 and 1. 6 % in 2019 – a slight upward revision this year and next compared with the previous exercise. the risks surrounding the euro area growth outlook have also become less pronounced, although remain tilted to the downside due to global factors. implications for the financial sector so there is no doubt that our measures are having their desired effect. yet unconventional monetary policy can have side effects as well, and especially for the financial sector. one key concern is their impact on banks ’ profitability – which remains generally weak in the euro area – and especially on net interest income. asset purchases flatten the yield curve and reduce the returns on maturity transformation ; and the negative interest rate policy de facto flattens the curve further, since the zero lower bound that banks typically apply on deposits means that a large share of bank liabilities no longer reprice when market rates fall. bank lending rates however typically do, compressing loan - deposit margins. consistent with this, margins between loan and deposit rates on new business narrowed in 2016 and may tighten further as loan rates continue to decline but deposit rates increasingly stack up against zero. more than half of the new deposits held by corporations and close to 40 % of those held by households are de facto no longer remunerated. slightly more than 40 % of the stock of corporate deposits and 35 % of household deposits have virtually zero return. this is clearly a challenging situation for banks, but so far its impact on profitability has been contained, since monetary policy has countervailing effects on bank balance sheets. ecb analysis suggests that lower net interest margins are being partly offset by higher asset valuations and a more robust economy – which in turn boosts lending volumes and leads to lower provisions and impairments for banks. and more generally, our policy measures create a faster recovery with higher inflation, which implies a faster return to monetary policy normalisation. such expectations are now one factor buoying bank share