Economic developments
and monetary policy in the euro area
Speech by the Governor of the Bank of Italy
Fabio Panetta
1. Global economic trends and outlook
The global economy remains sluggish. World trade stagnated again in the
fourth quarter of last year; it is expected to recover moderately this year, but at a
much slower pace than in the two decades before the pandemic.1
The simultaneous tightening of monetary policy by the central banks of the
leading economies is helping, along with the fall in energy prices, to bring inflation
down significantly, but is dampening demand. The exception is the United States,
where domestic demand and output continue to grow rapidly.
The global outlook is also vulnerable to the uncertainty fuelled by the conflicts
in Ukraine and the Middle East, as well as by the economic difficulties in China,
where the property crisis continues unabated.
Disruptions to the Red Sea shipping route, which handles around 12 per cent
of world trade, are forcing vessels from Asia to seek alternative routes. This is
delaying deliveries and increasing transport costs, especially for destinations in
Europe (Figure A1).
In this weak economic context, geopolitical fragmentation is setting back
economic integration between countries and regions across the globe.
The introduction of trade restrictions, under way for some time, accelerated
after the pandemic and the invasion of Ukraine (Figure A2),2 at times taking the
form of embargoes on exports of technological products such as microprocessors.
This could lead to a rebalancing of trade between countries, as has already occurred
for energy products.
If this new scenario were to endure, it would have significant medium- and
long-term consequences.
A decline in the international trade of goods, services, technologies and ideas
would reduce productive efficiency and dampen the potential growth of the global
economy, which has been declining for years (Figure A3). Indeed, global value
chains are vulnerable to disruptions in the supply of key inputs and have become
a source of uncertainty for macroeconomic developments.3 Barriers to capital
movements, in turn, reduce investment opportunities and risk diversification across
countries.
These trends could exacerbate the current downward pressure on the
equilibrium interest rate,4 as a result of population ageing, sluggish productivity5
and an increase in the demand for risk-free assets which has outstripped supply.
More broadly, commercial and financial fragmentation risks fraying the
multilateral order that has underpinned global economic development since the
end of the Second World War and fostered peace among the leading powers. The
effects of this would extend beyond economics and the financial sphere.
Given the openness of the European and Italian economies, geopolitical
divisions pose significant risks. It is in our interest to vigorously defend the progress
made so far in global integration and in multilateral dialogue.
At the same time, a far-sighted and pragmatic approach obliges us to find ways
to operate effectively in a less open world, thereby reducing the vulnerabilities
stemming from the new global situation.
There could be growth opportunities for the least-developed regions in Europe,
if they are able to intercept the investment flows in search of market outlets to
relocate some stages of the production process.
Analyses by the Bank of Italy and other central banks6 suggest that European
companies, especially those exposed to the Chinese economy, are reorganizing
their production and their supply chains.
3
For Italy, a quantification of the potential losses from specific input shortages due to geopolitical
fragmentation is discussed in A. Borin, G. Cariola, E. Gentili, A. Linarello, M. Mancini, T. Padellini,
L. Panon and E. Sette, 'Inputs in geopolitical distress: a risk assessment based on micro data', Banca
d'Italia, Questioni di Economia e Finanza (Occasional Papers), 819, 2023.
4
In the language of economists, the long-run equilibrium interest rate is also referred to as 'natural
interest rate'.
5
A. Gerali and S. Neri 'Natural rates across the Atlantic', Journal of Macroeconomics, 62, 2019; also
published in Banca d'Italia, Temi di discussione (Working Papers), 1140, 2017.
6
M. Bottone, M. Mancini and T. Padellini, 'Navigating fragmentation risks: China exposure and supply
chains reorganization among Italian firms', Banca d'Italia, mimeo, 2023; M.G. Attinasi, D. Ioannou,
L. Lebastard and R. Morris, 'Global production and supply chain risks: insights from a survey of
leading companies', ECB, Economic Bulletin, 7, 2023, 33-41; Deutsche Bundesbank, 'The significance
of China as a supplier of critical intermediate inputs to German firms', Monthly Report, 75, 9, 2023,
21-25.
While some of the remote regions that have benefited from significant
investment from advanced economies in the past are no longer as attractive to
investors, countries that can take advantage of low-cost renewable energy and
their proximity to European markets may become more so. In a context of tense
international relations, being a member of the European Union and of a stable
currency area, such as the euro area, as well as of the Atlantic Alliance, has become
a competitive advantage.
This is a rare opportunity for the Italian Mezzogiorno.7 However, turning
opportunities into concrete growth prospects will require active policies to attract
capital and to strengthen contextual factors, such as infrastructure, investment in
human and social capital, and efficient general government.8
2. The euro-area economy
In the euro area, the economy has been stagnating for five quarters now, owing
to weak foreign and domestic demand.9
The end of the post-pandemic upswing due to widespread reopenings, the
ongoing tightening of monetary policy and the climate of uncertainty are slowing
business investment and household spending.
Most of the euro-area's industrial sectors are in recession (Figure A4).10
A country-level analysis shows a sharp decline in industrial production in Germany,
hit harder than elsewhere by fewer purchases by China, and by the downturn in
energy-intensive sectors and the fragmentation of global manufacturing supply
chains. In Europe the cyclical weakness in manufacturing is beginning to affect
the service sector. The construction sector has also stalled. The latest information
does not point to a significant cyclical recovery in the short term (Figure A5).
7
'The economic development of Southern Italy: a national priority', address by Fabio Panetta at the
Foggia branch of the Italian Istituto Poligrafico e Zecca dello Stato (State Mint and Polygraphic
Institute), 21 September 2019 (only in Italian).
8
A. Accetturo, G. Albanese and R. Torrini (edited by), 'The North-South divide: economic development
and public intervention', Banca d'Italia, Seminars and conferences, 25, 2022 (only in Italian); S. Galano,
L. Sessa and S. Zuccolalà, 'The quality of electricity supply: a comparison among Italian regions', Banca
d'Italia, Questioni di economia e finanza (Occasional Papers), 737, 2022 (only in Italian).
9
Total euro-area exports for the third quarter of 2023 were 3 per cent lower than the corresponding
year-earlier period, based on national accounts.
10
The pharmaceuticals and electronics sectors are the main exceptions having benefited from,
respectively, the surge in vaccine and new drug production, and the strong demand for products
needed for remote working.
One bright spot in this low-growth scenario is rising employment. Labour
demand was initially supported by the post-pandemic surge in manufacturing and
then by the shift towards labour intensive processes, made relatively cheaper by
rising energy prices. In 2021 and for most of 2022, the number of job vacancies
rose.
Labour shortages in recent years have spurred businesses to retain workers,
even when this means exceeding their staffing needs.11 This has supported
employment and consumption.
If economic activity remains weak, firms may have to cut their workforce
significantly.12 We have already seen signs of a labour market slowdown: the
number of vacancies has been falling since its peak in spring 2022 (Figure A6).
The fiscal policies of euro-area countries are expected to hold back the
economy over the coming months. They are expected to become more restrictive,
especially owing to the withdrawal of the stimulus measures introduced in response
to the energy crisis.
Last December, the European Central Bank revised the 2024 growth
projections downward, to 0.8 per cent, leaving those for 2025 unchanged at 1.5
per cent. These estimates are higher than those of private analysts13 and, given the
recent data, could prove to be optimistic. In any case, they all point to a modest
pace of growth, slower than before the pandemic.
However, the problems facing the European economy are not only cyclical.
There are structural issues that make the growth model followed by our continent
particularly vulnerable to the changes in the world economy that I mentioned
previously.
A production base integrated into long and complex international value chains,
the concentration of exports in areas that are less economically dynamic than
before, and the relatively high weight of the industrial sector - which is expanding
less than the service sector - are all weaknesses in today's altered international
context.
There is a risk that the slow growth of recent years will become rooted in
firms' investment plans, in consumer expectations and, ultimately, in the entire
European production fabric, thereby thwarting future development opportunities
and ambitions. In the United States, both GDP and consumption have returned
to or even exceeded their pre-pandemic long-term growth paths, but this has not
been the case in Europe (Figure 1).
Figure 1
Consumption and GDP in real terms
in the euro area and the United States (1)
(index numbers, Q4 2017=100)
Real consumption Real GDP
110 110 110 110
100 100 100 100
90 90 90 90
2017 2019 2021 2023 2017 2019 2021 2023
Euro area USA
Euro area: 2014-19 trend USA: 2014-19 trend
Sources: Based on Bureau of Economic Analysis and Eurostat data.
(1) Seasonally adjusted quarterly data.
The potential offered by the Single Market is enormous. In order to take
advantage of it, we must regain our sense of common purpose, at both the financial
and political level, that same sense which enabled us to respond swiftly to the
pandemic shock.14
3. Monetary policy in the disinflation phase
Over the last two years, the ECB's monetary policy has shifted sharply from
a very expansionary to a very restrictive stance.
This change of pace was necessary in response to inflationary shocks of
historic proportions caused by bottlenecks in global production chains and energy
price increases.
We could argue about the pace and intensity of monetary policy, but one
thing is clear: inflation has not become self-sustaining or endemic. Medium-term
inflation expectations have remained anchored at the 2 per cent target (Figure A7),
a prerequisite for price stability. This has limited the cost of disinflation, which has
so far unfolded without triggering a deep recession.
For this to be the end result, for inflation to be permanently eradicated and for
the economy to return to a path of growth and stability, the next monetary policy
decisions must be consistent with the current macroeconomic picture.
In this uncertain environment, any speculation on the exact timing of monetary
easing would be a sterile exercise and disrespectful to the ECB Governing Council
as a collegiate body. What should be discussed now are the conditions to start
monetary easing, while avoiding risks to price stability and unnecessary damage
to the real economy.
The conditions for starting monetary policy normalization
There are three conditions for starting monetary policy normalization.
First, the disinflation process must be well under way.
Recent data suggest that progress towards price stability has been greater
than many were expecting just a few months ago. Inflation fell to 2.8 per cent in
January, 8 percentage points below its peak in 2022 (Figure A8). Core inflation,
which excludes food and energy, has also fallen rapidly.
While varying in intensity, this decline was broad-based across all countries
(Figure A9) and across a very large proportion of items in the consumption
basket (Figure A10), including products that typically show more persistent
price changes.
Second, the fall in inflation needs to be sustained.
Indicators of short-term and underlying inflation clearly point to ongoing
disinflation.
Measures of inflation momentum - which are less influenced by past trends
and reflect current developments more accurately - are consistently below annual
inflation. These are also at low levels for both headline and core inflation, with
similar trends for services and industrial goods (Figure 2).
The decline in firms' and households' inflation expectations, as well as those
of market participants, points in the same direction. The latter expect inflation
Figure 2
Headline and core inflation in the euro area (1)
(12-month percentage changes and annualized 3-month percentage changes)
Headline Core
14 14
6 6
10 10
4 4
6 6
2 2
2 2
0 0
-2 -2
2021 2022 2023 2021 2022 2023
8 8
Non-energy
Services
industrial goods
6 6
6 6
4 4
4 4
2 2
2 2
0 0
-2 -2
0 0
2021 2022 2023 2021 2022 2023
12-month 3-month
Sources: Based on ECB and Eurostat data.
(1) Monthly data. 12-month percentage changes and annualized 3-month percentage changes, calculated using seasonally
adjusted data.
to return to around 2 per cent as early as this spring. Subsequent downward
revisions in the Eurosystem's projections also signal that disinflation is under
way (Figure A11).
Another key element is the unwinding of the energy shock. Specifically, gas
prices are now close to their mid-2021 level and below the technical assumption
used in the latest Eurosystem projections.
The third condition for monetary normalization to begin is that the achievement
of the inflation target is not jeopardized by a potential interest rate cut.
This last requirement depends on several factors: the outlook for economic
activity, the transmission of monetary policy to the financial and real sectors, and
the risks to future inflation developments.
On the first point, I have already outlined the domestic and international
factors that are holding back the economy.
As regards the transmission of monetary policy, the effects of tightening are
proving to be stronger compared with both past experience and the ECB's previous
estimates.15 Moreover, interest rate hikes and the reduction in liquidity supply will
continue to weigh on the economy throughout 2024.16
The impact on the credit market has been particularly pronounced, with
lending rates to households and firms rising (Figure A12) and real growth rates
similar to or lower than during the crises of the past decade (Figure A13).
These developments reflect not only the decline in credit demand due to
higher lending rates, but also the tightening of credit supply standards at a time
when borrowers are expected to become riskier.17 Looking ahead, this tightening
may be exacerbated by banks' lower liquidity buffers (Figure A14) due to the
reduction in the size of the Eurosystem's balance sheet.18
The risks to inflation
Turning to the risks to inflation, let me first emphasize that the main concerns
raised in the past are proving to be unfounded.
I have already mentioned that there has been no upward de-anchoring of
inflation expectations; if anything, downside risks are emerging.19
Concerns about the hypothesis of persistently high core inflation have also
proven to be groundless: indeed, core inflation has declined in recent months,
following the fall in headline inflation, in line with past empirical evidence20
(Figures A15 and A16).
15
'Everything everywhere all at once: responding to multiple global shocks', speech by F. Panetta at
The ECB and its Watchers XXIII Conference, Frankfurt, 22 March 2023. 'The banking channel of
monetary policy tightening in the euro area', speech by P. R. Lane at the NBER Summer Institute
2023 Macro, Money and Financial Frictions Workshop, Cambridge, Massachusetts, 12 July 2023.
16
Empirical evidence suggests that the effects of monetary policy feed into production and price
dynamics with an estimated lag of six to eight quarters. See, for example, M. Darracq-Paries,
R. Motto, C. Montes-Galdón, A. Ristiniemi, A. Saint Guilhem and S. Zimic, 'A model-based
assessment of the macroeconomic impact of the ECB's monetary policy tightening since December
2021', in ECB, Economic Bulletin, 3, 2023, pp. 61-67.
17
The Bank Lending Survey conducted by the Eurosystem suggests that banks' risk perception and
risk aversion were the two key factors behind tighter credit standards for firms and households;
see M. Bottero and A. M. Conti, 'In the thick of it: an interim assessment of monetary policy
transmission to credit conditions', Banca d'Italia, Questioni di Economia e Finanza (Occasional
Papers), 810, 2023.
18
'Disinflation in the euro area and opportunities for the Italian economy', speech by F. Panetta at the
conference 'Cooperative Banking Group: opportunities and challenges of a new banking model',
Rome, 30 November 2023.
19
Over the past few weeks, inflation expectations five to ten years ahead based on price-indexed financial
asset prices have fallen slightly below the 2 per cent target (Figure A7).
20
'Getting disinflation right', speech by F. Panetta, Bocconi University, Milan, 3 August 2023.
Similarly, fears that inflation would stop falling after the initial rapid decline
- the 'last mile problem' - now appear unwarranted: inflation is falling at the same
rate or faster than it has risen (Figure A17).
The risk remains that still strong nominal wage growth could reignite inflation.
This possibility should not be underestimated, but a closer look at the data allays
these concerns.
Labour is only one production factor, and its share of total costs for firms is
much lower than that of intermediate goods and energy (Figure 3).21 Current wage
growth, while higher than in 2021 and 2022, is offset by the decline in other costs
that has been ongoing for months.
Figure 3
Composition of costs for firms in the euro area (1)
(per cent of total costs)
0 20 40 60 80 100
Industry
(excluding construction)
Construction
Private services
Total economy
0 20 40 60 80 100
Intermediate goods costs (incl. energy) Labour costs
Sources: Based on data from Destatis, Eurostat, Insee and Istat.
(1) Estimates based on the data for France, Germany and Italy.
The increase in firms' total production costs - which is the main driver of
inflation22 (Figure 4) - has gradually fallen to zero, easing inflationary pressures.
In line with these developments, firms do not expect total costs to accelerate in the
coming months (Figure A18).
Figure 4
Total unit cost, labour unit cost
and headline inflation in the euro area (1)
(percentage changes on year-earlier period)
12 12 12 12
8 8 8 8
4 4 4 4
0 0 0 0
-4 -4 -4 -4
2018 2020 2022 2018 2020 2022
Labour unit cost Total unit cost Headline inflation
Sources: Based on data from Destatis, Eurostat, Insee and Istat.
(1) Quarterly data. Percentage changes compared with the year-earlier period. Estimates based on the data for France,
Germany and Italy. Unit costs are calculated as the ratio of total costs to total output in real terms.
The effects of stagnating total production costs are compounded by those of
weak demand for goods and services, which makes firms less likely to pass on
wage increases to prices, for fear of losing market share.
Therefore, a hypothetical increase in wage growth is currently highly unlikely
to trigger a wage-price spiral.
Moreover, with inflationary pressures tilted to the downside and corporate
profits high, some recovery in the purchasing power of wages, after the recent
losses (Figure A19), is to be expected and will support consumption and the
economic recovery.
Conflicts in the Middle East also pose risks to inflation. However, maritime
transport only accounts for a small share of total production costs.23 Here too, low
demand and high inventories reduce the likelihood of higher transport costs being
passed on to prices to a significant extent. Nonetheless, it cannot be ruled out that
the situation will worsen and that tensions will escalate, affecting the supply and
prices of energy products. These developments will need to be monitored closely.
Implications for monetary policy
Macroeconomic conditions suggest that disinflation is at an advanced stage,
and progress towards the 2 per cent target continues to be rapid. The time for a
reversal of the monetary policy stance is fast approaching.
The March ECB staff projections will provide useful elements for assessing
the next monetary policy move. The first step, but also the various options on
the way to monetary policy normalization must be carefully weighed. We need
to consider the pros and cons of cutting interest rates quickly and gradually, as
opposed to later and more aggressively, which could increase volatility in financial
markets and economic activity.
4. The economic situation and the Italian banking system
In Italy, GDP growth was 0.7 per cent in 202324 and is expected to remain at
around that level this year. Inflation, which was 0.9 per cent in January, is expected
to remain below 2 per cent in 2024.
Industrial production is being affected by stagnation in Germany and by the
lower contribution of demand from the other export markets for Italian goods.
Growth in value added in services is modest. The exception is the construction
sector, where activity is buoyed by incentives that are now being phased out.
Despite a generally weak economic environment, some areas of production
are showing signs of dynamism.
The revision of the national accounts last September raised GDP growth
in 2021 by over 1 percentage point, showing an economy that has recovered
quickly and resolutely from the pandemic-induced recession. Italian GDP is now
3.6 percentage points higher than at the end of 2019, compared with increases of
1.8 percentage points in France and 0.1 percentage points in Germany.
The labour market has also returned to its pre-crisis levels. In 2023,
employment increased by 1.9 per cent, reaching its highest point for many
years, as did the participation rate. Stable forms of employment have become
widespread.
This positive employment trend is bolstering household incomes, especially
for less well-off households.25 Consumption grew by 1.4 per cent in the first three
quarters of 2023 and we estimate that it will continue to support demand this year.
The positive trends that emerged after the pandemic must be consolidated.
In recent years, Italy has achieved sizeable trade surpluses and improved its
net international creditor position. This testifies to the competitiveness of many
Italian firms on the world market, but also signals untapped potential for growth:
a positive trade balance is equivalent to a transfer of savings abroad, which in turn
indicates that the volume of investment is lower than the capacity to save.26
The recovery in capital accumulation following the pandemic crisis marks
a potential breakthrough in this regard. This trend now needs to be reinforced by
stimulating investment and channelling it towards improving infrastructure and
technology, and firms' capacity to innovate.
In the shorter term, we need to reap the full benefits of implementing the
reforms and investment under the National Recovery and Resilience Plan (NRRP),
which can boost Italy's potential growth and make the necessary rebalancing of its
public accounts less arduous.
The information available for 2023 suggests that the fiscal deficit and public
debt as a percentage of GDP have fallen. Over the next few years, despite the
expected decline in the deficit, debt should remain broadly stable, largely due to
the use of the sizeable building renovation tax credits that have accrued over the
past few years.
We need to work on several fronts to speed up fiscal consolidation: prudent
management of our public finances to achieve an adequate primary surplus has to
go hand in hand with reforms and investments that can boost growth.
Italian banks
The main balance sheet indicators paint a positive picture of the Italian
banking system.
Capital rose to 15.8 per cent of risk-weighted assets,27 in line with the other
euro-area banks. Non-performing loans as a share of total loans fell to 1.4 per
cent,28 completing the recovery process that began almost a decade ago.
Liquidity ratios are well above the regulatory requirements. Profitability has
also improved: the return on equity is close to 13 per cent,29 a figure not seen since
the global financial crisis.
Part of this improvement reflects the efficiency gains in costs and in credit
risk management, as well as the positive effects of the regulatory reforms and of
rigorous supervision.
Yet it also reflects exceptional factors. In fact, banks have benefited from the
macroeconomic policies adopted to counter the crisis and from the unusual market
conditions of the last two years, with ample liquidity and rapidly rising interest
rates.
The increase in market interest rates has been passed through swiftly to interest
income on short-term and variable-rate loans, which account for a large share of
total loans in Italy (Figure A20).30 At the same time, abundant liquidity and low
demand for credit have limited the increase in the cost of sight deposit funding,
which accounts for 40 per cent of total bank funding.
The improvement in credit quality also reflects the sound profitability and
financial conditions of firms (Figure A21). This in turn partly reflects both the
surge in production following the pandemic and the ample liquidity buffers that
firms have accumulated in recent years thanks to their access to State-guaranteed
loans.
Looking ahead, it would be imprudent to rely on the unrealistic assumption
that such a positive situation could arise again. And since it is in times of relative
calm that the imbalances that emerge in cyclical downturns are built up, we should
be thinking today about the risks we may face tomorrow.
We need to focus on three areas.
Liquidity and funding
Maintaining a balanced maturity structure of assets and liabilities remains a
priority.
At a time when the Eurosystem is mopping up excess liquidity, banks' funding
plans should be realistic and promptly implemented. It is important to avoid the
fallacy of composition: it is unlikely that all banks will be able to turn to the market
at the same time and at low cost.
Aggregate liquidity will gradually decline, but the ability to raise funds in the
market may fluctuate intermittently as banks' excess reserves diminish or in the
event of market turbulence.
The US banking crises of March 2023 show that individual lenders' liquidity
strains can rapidly turn into deposit runs, due to the speed with which customers
can transfer funds using online banking and to the propagation of information
through digital channels.
They also confirmed the importance of timely access to liquidity sources,
including central bank refinancing. In this regard, the Bank of Italy's collateral
valuation framework permits the rapid collateralization of a wide range of financial
instruments, including less liquid ones.
Our supervisory function is assessing the accuracy and credibility of banks'
funding plans. Particular attention is paid to banks that have less diversified funding
sources and rely on deposit growth.
Non-performing loans
Past experience suggests that rising interest rates have positive effects on
banks' balance sheets in the short term, but over longer horizons they often have
a negative impact on households and firms' financial conditions, with spillback
effects on credit.
Bank of Italy estimates suggest that the quality of loans may deteriorate over
the next two years. Non-performing loan ratios are expected to remain well below
the peaks reached after the sovereign debt crisis, but unexpected events could lead
to more adverse scenarios.
Banks must be prudent when classifying loans and apply international
accounting standards thoroughly, which require them to record expected losses
and make appropriate provisions, even when losses have not yet materialized.
Where models fail to fully capture the effects of new risk factors on default
probabilities, banks are required to make specific adjustments.31 Several banks
already do so, but their approaches vary, so the Bank of Italy is conducting research
to identify and disseminate best practices in this area.
An ecosystem of companies specialized in the management and recovery
of non-performing loans has emerged in the wake of the sovereign debt crisis.
This activity, which has become an important part of the credit sector, has made
considerable progress in recent years.32
But there is still room for improvement. The Bank of Italy is stepping up its
supervision of debt collection companies, known as master servicers.33 Some
organizational shortcomings have been found, which call for stronger controls
and improved risk management and recovery strategies, especially when these are
outsourced.
The most difficult challenge, and the one with the greatest impact on the real
economy, is the management of loans to customers who are struggling but may
recover. In order to draw up effective recovery plans for borrowers, companies
working in this area need to improve their management, financial and advisory
capacities.
Capital
In light of the risks emerging to their activity, banks must safeguard the
soundness of their capital base.
Since 2020, the increase in the capital ratios has been driven by the decline
in risk-weighted exposures - the denominator of the ratio - mainly as a result of
the State-guaranteed loans granted, which are gradually reaching maturity.34 At the
same time, the amount of capital has decreased.35
31
These are called overlays, whose use is encouraged by the supervisory authorities to take account of risks
(such as geopolitical, inflation and climate risks), not always adequately captured by ordinary models.
32
See FSB, 'Peer Review of Italy', 2024.
33
All supervised servicers perform the guarantee tasks envisaged under Law 130/99 (master servicing
tasks). The recovery of securitized loans is almost exclusively left to third-party agencies, which are
licenced to do so under Article 115 of the Consolidated Law on Public Security (Testo unico delle
leggi di pubblica sicurezza, TULPS) and are not subject to supervision (special servicers). Special
servicers have usually already been involved by the investor when due diligence is performed on the
securitized portfolios and are responsible for preparing and updating business plans; they are also
directly accountable to investors for debt collection scenarios.
34
Around 80 per cent of the State-guaranteed loans to Italian banks will expire by the end of next year.
35
M.A. Aiello, C. Ciancaglioni and G. Manzelli, 'Risk-weighted assets dynamics for Italian and SSM
banks over the last three years', Banca d'Italia, Notes on Financial Stability and Supervision, 34, 2023.
The trends in capital can be reversed by drawing on last year's exceptional
profits, thereby strengthening the banks' ability to absorb future losses.
Aside from the microprudential perspective, macroprudential capital
buffers are necessary to enable banks to support the economy in the event
of external shocks to the financial system. These can be built up by financial
intermediaries using capital in excess of minimum requirements, without
raising new capital.
With the pandemic emergency behind us, many foreign authorities have
increased capital buffers that can be released if adverse events occur. The
Basel Committee has welcomed the accumulation of macroprudential reserves,
including when cyclical growth is not strong. The ECB has also supported the
build-up of such buffers, banks' capital positions and profitability permitting.
The Bank of Italy is examining the macroprudential policy stance in Italy.
The results will be announced in the coming weeks.
5. Technology
In recent years, the debate on the impact of technology on the financial
system has focused on the risk that 'traditional' intermediaries could be
disintermediated by FinTech companies - young and innovative companies
specializing in the application of technology to finance.
This risk has not materialized. What can be seen, in Italy and
internationally, is that banks have embraced the most promising innovations,
adopting