the global crisis ”, banca d ’ italia occasional papers, no. 69, july ). in particular, the scenario considered contemplates tighter monetary and supervision policies in the united states and an increase in domestic demand in major surplus economies. the latter would have been the result of wealth effects obtained through productivity enhancements in the nontradable sector in advanced surplus economies and of policies aimed at directly rebalancing growth towards domestic demand – such as measures that reduce households ’ precautionary savings and reforms of corporate governance which decrease retained earnings, coupled with exchange rate appreciation – in emerging economies. even though it is difficult to say whether in that scenario the financial crisis might have been avoided, its propagation would likely have been less destructive, as both the us financial system and the global economy would have been less vulnerable to it. specifically, us housing prices would not have expanded at the same pace as they did and the pattern of current accounts would have been better balanced. overall, the results of such a counterfactual scenario highlight the complementarity of policy actions in deficit and in surplus countries with respect to the correction of both internal and global imbalances. notwithstanding announcements about the importance of coordination and cooperation in the design and development of crisis strategies, in practice, countries have proceeded to adopt policies that appear to be national in character. strengthening multilateral coordination to mitigate global distortions remains a priority. the issue of cooperation extends beyond the design and implementation of stabilization policies and appears particularly relevant in managing exchange rate flexibility. 2. exchange rate flexibility and financial flows for countries in surplus, the rebalancing toward domestic demand should normally be accompanied by an exchange rate appreciation to help re - direct production toward nontradables and part of the additional absorption toward imports. the consequent terms - oftrade gains would help stimulate domestic consumption. in principle, an effective exchange rate appreciation can be achieved in different ways depending on the exchange rate regime. greater exchange rate flexibility could, for example, take the form of exchange rate fluctuation within a moving ( e. g. gradually appreciating ) target band, defined with reference to either the dollar or a currency basket. it is possible to imagine a wide range of variants of this regime depending on the width of the band, the speed of appreciation, the composition of the basket and whether the margins of the band are “ hard ” or “ soft ”, as well as depending on the degree of pre - commitment

a number of weak banks called for an urgent solution. we have today a banking sector with higher capital adequacy and a significantly lower level of npls. we have come a long way – we have preserved both financial stability and citizens ’ trust in the republic of serbia ’ s banking sector. this is corroborated also by household foreign exchange savings exceeding eur 9 billion in january this year for the first time on record. with the exception of several smaller banks, serbia ’ s banking sector remained stable during the crisis. the capital adequacy ratio is much above the regulatory threshold of 12 % – at endseptember 2016 it equalled 21. 2 % ( end - june 2016 : 21. 6 % ), owing mainly to a 3. 1 % rise in risk4 / 5 bis central bankers'speeches weighted assets ( reflecting primarily growth in credit risk - weighted assets ). according to preliminary data, the profitability of the banking sector improved in 2016 compared to 2015. net pre - tax profit was around eur 217 million. ( slides 11 and 12 ) what remains to be tackled is the amount, level and structure of npls. credit risk reflected in a relatively high share of npls in total loans poses the greatest problem for us. however, it should be borne in mind that a considerable portion of npls was inherited from the pre - crisis period. at the same time, during the crisis the npl growth in serbia was lower than in other countries of the region. since end - may 2015, when it reached its peak, the npl ratio has been on a downward path, though remaining relatively high ( 17 % at enddecember 2016, down by 4. 6 pp relative to the same period the year before ). as regards the npl structure, the corporate sector still accounts for the largest share. it accounted for around 45 % of total npls in december 2016. at the same time, the npl ratio has been on a decline ( 17. 5 % at end - december 2016 ). the gross npl ratio for the household sector is much lower than for corporates ( it equalled 10 % at end - december 2016 ). in late december 2016, the npl ratio for housing loans was 8. 7 %, followed by 7. 5 % for cash loans. it is noteworthy that gross npls remain fully covered by loan loss reserves. at end - december 2016, loan loss reserves covered 131 % of gross