This behaviour is in sharp contrast to the intense accumulation of financial assets observed previously and reflects the adjustment of banks’ balance sheets in the context of the general deleveraging process. The decline in the annual growth rates of assets has been most visible in short-term loans and deposits as well as in liquid assets, such as equities and mutual fund shares. The sharp contraction in interbank deposits has mainly reflected the freezing of the interbank market following the onset of the financial turmoil, in the context of which euro area monetary financial institutions (MFIs) withdrew their short-term deposits placed at banks. In addition, euro area banks have scaled down their deposits with other counterparts outside the euro area. As well as downsizing their external assets, banks initially scaled down their investment in marketable assets. By contrast, partly related to “relationship banking”, the growth rates of long-term loans have held up. Banks’ investment in long-term debt securities even accelerated in early 2009; indeed, MFIs stepped up their purchases of government debt securities, reflecting the generous liquidity situation in an environment of heightened risk aversion. While the slowdown in the growth rate of assets in principle limits the earning capacity of banks, other factors contributed in the first half of 2009 to a marked improvement in the profitability of large banking groups in the euro area. Net interest income was the main factor behind this improvement, owing to the positive slope of the yield curve and wider operating margins.
Only little more than 12% are in the form of government securities, whereas the rest, around 6.5%, are invested in investment or private pension funds, accounting for only 0.1% of total financial system assets. Statistics show that only a small number of companies operate in other segments of the financial sector, and their activity in terms of the Domestic Product or of the financial market remains insignificant. Regarding the above, we may logically conclude that the financial market architecture may not be considered complete yet. Financial instruments with long-term maturities are rare, whereas the short-term ones outside the banking system are apathetic and fragmented, in terms of both products and markets. An outcome of such a financial architecture is a kind of added pressure on the banking system, depriving the economy of other financing alternatives, beyond what the banks offer. This vacuum may not be filled with strained efforts by the banking system. It has been broadly accepted that each segment of the financial market plays a complementary rather than substituting role. I could mention a number of examples to illustrate my point, but for the moment I would rather not, as in the next panels these issues will be discussed in greater detail by other 2/4  BIS central bankers' speeches  colleagues and academics during the day. Overall, the above elaboration regards investment-related financial institutions and financial instruments.