Hence, the second major challenge for banks is to put in place a good data base and systems to identify, measure and manage all banking risks to optimize their use of capital and price their products according to risks. In addition, when taking into account the risk associated with business cycle, banks must be prepared to beef up financial strength during favorable economic conditions so that they could weather vulnerability during the downturns. These are daunting tasks and again require the full attention and commitment of the Board. Banking is all about customer relation; this is particularly true for personal banking segment. The needs for financial institutions to properly take care of customer complaints are occasionally highlighted by a few high profile cases in the media. This type of issue will gain more importance, given the growing retail banking sector. To remain competitive and maintain customers’ trust, banks must be fair and transparent about their provision of financial services, a challenge which is very much in line with the Basel II’s Pillar 3. Ladies and Gentlemen, I have not forgotten the capital market, another integral part of the financial market, which makes it vibrant and offers diversification in terms of channels of financial intermediation. Deeper and broader capital market can avert or at the very least lessen the liquidity crunch effect on corporations in the event of a banking crisis. Efforts, therefore, have been made to develop the capital market to curtail dependence on the banking sector.
With regard to the euro area as a whole, optimism among households and companies has been somewhat subdued in recent months, probably as a result of the crisis in Greece. However, the most recent survey in July indicates that optimism among companies is rising again, which may be due to the third loan programme for Greece appearing to be within reach. GDP growth in the euro area in the second quarter, compared with the same quarter last year, was 1.2 per cent according to our forecast. US developments still looking good We see continued signs of good economic growth in the United States. GDP rose by just over two per cent in the second quarter, compared with the same quarter last year, see Figure 7, entirely in line with our forecast. Household consumption remains strong. Exports also rose significantly in the second quarter despite the dollar appreciating for a period of time. The housing market is continuing to recover and this creates an increasing number of jobs. Unemployment fell to its lowest level since 2008. The US Federal Reserve signalled at the end of July that it still has plans to raise its policy rate this year. The labour market is expected to be able to develop better than was previously believed an only a “few” further improvements are needed before monetary policy may need to be tightened. However, although most signs are pointing in the right direction in the US economy, the recent statistics on wage developments have been at relatively low rates of increase.