On a consolidated basis, the rate of return on equity and the rate of return on assets before taxes were respectively 16,1% and 1% for 2004 and the capital adequacy ratio reached 12,8% at the end of 2004. In view of the dominance of the banking sector in the Greek financial system, I will focus on this sector.
In such a case, it is easy to see how interest rate cuts could lead to the type of boom-bust cycle, or negative feedback, that I have associated with vulnerabilities. Now, if everyone in the economy has expectations based only on fundamentals, these types of outcomes should not arise.