jean - claude trichet : celebration of 130th anniversary of the bulgarian national bank speech by mr jean - claude trichet, president of the european central bank, at the gala event of the celebration of 130th anniversary of the bulgarian national bank, sofia, 12 june 2009. * * * dear president, dear prime minister, your excellencies, dear governor iskrov, ladies and gentlemen, it is a great honour and a pleasure for me to be here this evening and to address you on the occasion of the 130th anniversary of the bulgarian national bank. i should like to start by thanking my colleague, governor iskrov for inviting me to do so. the bulgarian national bank has good reasons to proudly celebrate this historical date : the achievements during the last 130 years have been many. the bulgarian national bank, like most of the other central banks with a long history, did not arise as the institution we know today. it has evolved over time. since its establishment in january 1879 as a government credit institution with an authorised capital of two million french francs, the bulgarian national bank has come a long way. progressively, it acquired new and increasingly complex functions and duties. it has also established over time close relationships with the rest of the banking and financial system, both at home and in the international sphere. being the guarantor of the bulgarian people ’ s money, the bulgarian national bank has become one of the most respected public institutions in this country. during its long existence, the bulgarian national bank has been confronted with several challenges, some of them of great significance. equally, since 1881, the year of the introduction of the lev – which i have been told in ancient bulgarian means “ lion ” –, the bulgarian national bank has to deal with several major institutional changes. the most recent took place in 1997 when a currency board arrangement to the deutsche mark was adopted. in 1999, the latter was replaced by the euro. before the actual accession of bulgaria into the eu, a cooperation agreement was signed by the ecb and the bulgarian national bank in january 2005. moreover, under the leadership of governor iskrov, the ecb and the bulgarian national bank worked intensively together on the bulgarian national bank ’ s law to bring the independence of the central bank generally in line with eu legislation however, some additional changes still need to be made to ensure that legislation in the monetary field is fully in line with the provisions of the treaty. following bulgaria ’ s entry into the eu on 1 january 2007

loans have held up. banks ’ investment in long - term debt securities even accelerated in early 2009 ; indeed, mfis stepped up their purchases of government debt securities, reflecting the generous liquidity situation in an environment of heightened risk aversion. while the slowdown in the growth rate of assets in principle limits the earning capacity of banks, other factors contributed in the first half of 2009 to a marked improvement in the profitability of large banking groups in the euro area. net interest income was the main factor behind this improvement, owing to the positive slope of the yield curve and wider operating margins. in addition, trading income recovered strongly as financial markets rebounded after the first quarter of 2009. finally, revenues from fees and commissions held up remarkably well throughout the financial turmoil. at the same time, a number of significant risks remain and some may have even increased. first, the slowdown in the growth of assets held by euro area banks limits their future earning capacity in terms of interest and investment income. second, a deterioration in the credit quality of borrowers may put a drag on banks ’ future earning capacity. in fact, while large and complex banking groups seem to be gradually absorbing the losses they suffered on their securities holdings, driven in part by the reclassification of assets, they have reported sharply higher provisions for loan losses. let me now turn to capital ratios. the recovery in the earnings of large and complex banking groups in the euro area, together with a slowdown in the growth rate of both risk - weighted and total assets and an increase in capital, from both public and private sources, has meant that the capital ratio of the average banking institution has typically been relatively stable. there is, however, considerable divergence between groups. a somewhat reassuring finding is that the institutions which reported the largest increases in loan loss provisions also seem to have the highest capital buffers. this may mitigate the solvency risks originating from deteriorating asset quality in the future. a breakdown of banks by size against this background, it is not surprising that banks ’ balance sheet constraints played a greater role during the recent financial turmoil, leading to a tightening of credit standards by banks, as shown in chart 2. the bank lending survey for the euro area, from which this information is taken, distinguishes between large banks and smaller banks. in particular with respect to the greater relevance of smaller banks for sme financing, it is therefore of interest to distinguish between the lending of large banks and that of smaller banks in the euro