For some LCBGs with sizeable capital market operations, the share of trading income accounted for nearly half of net operating income in 2006 and corresponded to more than 45% of their Tier 1 capital, as shown in the chart on the right of slide 10. Special Feature article A looks at the relationship between bank income diversity and systemic risk. It finds that a measure of systemic risk is positively correlated with bank size and the share of trading income, while it is negatively correlated with revenues from (traditional) interest income sources. 4  BIS Review 69/2007  Euro area insurance sector In the euro area insurance sector, there was a broad-based improvement in profitability in 2006 (see the chart on the left of slide 11). The positive assessment is further supported by the fact that the profitability of the weaker performers in 2005 also improved in 2006. Underlying this improvement was a strengthening of investment income, mainly owing to buoyant stock markets and higher interest rates. Moreover, favourable developments in the financial conditions of primary insurers and reinsurers in 2006, together with a greater focus on risk management and risk-adjusted prices, support a positive outlook for the euro area insurance sector as a whole. These positive developments continued to be priced into expected default frequencies (as shown in the chart on the right of slide 11). However, risks and challenges for the sector remain, as greater financial market risks could pose a challenge to the life insurance and non-life insurance sectors. 5.
As for interest rates,  BIS Review 11/2007  1  going forward, it is not yet certain whether the US long rates would need to rise in order to facilitate the financing of the US current account deficit. This would depend essentially on the relative ease with which the US deficit can be financed. So, I think we need to watch these developments closely because financial markets can adjust much more rapidly than the real side of the economy. Turning to the Thai economy. Last year, the economy showed considerable resilience, notwithstanding many adverse shocks affecting it, especially the higher oil price and political uncertainties at home. Growth, estimated at about 5 percent last year by the market, is satisfactory while the second round effects of the oil price increase on inflation were well contained. Overall, the economy's fundamentals remain sound with economic stability intact. Last year, monetary policy in Thailand was focused on limiting the second round effects of the oil price increase on inflation. That focus I think was well met. Policy rate has been held steady from midyear last year, and since then, inflation pressure looks to be moderating. Latest data show a further consolidation of inflation in December. So, under the current softening trend, baring no surprises on the oil price, there is also a possibility that, in Thailand too, inflation could be less of a policy concern this year. Under this scenario, therefore, there could be greater room for monetary policy to aim for a balance between growth and inflation.