The average deposit rate on households and corporate deposits for the region equals 1.4% and 0.9% in 2016, compared to around 5% and 4%, respectively in 2007.5 The correction is in line with the policy rate and lending rates adjustment, and reflects the natural response of the banks for preserving their profitability at acceptable levels. Yet, it seems that deposit interest rates in some of the countries in the region, in the members of the Euro Area in particular, are approaching the lower bounds. Albeit saving alternatives for the private sector in the region are limited, further drop in deposit rates might act as a constraint for further deposit growth. The falling opportunity costs can increase the propensity to hold cash or short-term funds in the banking system, thus eroding the quality of the financing sources and banks’ ability to provide more credit. Still, given that recent bank profitability indicators point to a gradual improvement in profitability, profitability concern will probably weigh less on the deposit interest rates. Nevertheless, in few of the countries (Croatia, Hungary, and Bosnia) profitability indicators are still worrisome. In addition, further decline of the ECB rates, for some of the countries might also pose challenges in this regard. 5  Interest rate data for Bosnia, Croatia, Serbia available since 2011, or 2012. Hence the 2007 figures do not include these countries, and Albania as well, for which sector by sector data is not available.
The European Central Bank In this respect, judging by past experience, I am confident that if and when institutional or political changes do become necessary, the EU is and will be able to rise to this challenge. The introduction of the euro and the creation of a new institution, the ECB, which is responsible for the single monetary policy, provide clear evidence that this is already the case. Let me briefly discuss some features of the ECB, which has a clear mandate to focus on maintaining price stability in the euro area as a whole. In fact, in the euro area, monetary policy cannot be tailored to the specific needs of a country or region. The single monetary policy is governed by the decision-making bodies of the ECB. These are the Governing Council and the Executive Board. They may be considered broadly comparable with the Federal Open Market Committee (FOMC) and the Board of Governors of the Federal Reserve System. Like the FOMC, the Governing Council of the ECB is responsible for taking key monetary policy decisions, including the setting of official interest rates. Whereas the FOMC is composed of the members of the Board of Governors of the Federal Reserve System and four Reserve Bank presidents, the Governing Council is composed of the members of the Executive Board of the ECB and the Governors of the national central banks of the euro area. The Governors naturally bring with them their own country-specific expertise and experience.