made the markets suddenly aware of the implications of the no bail - out clause in the eu treaty. these events laid bare the incompleteness of the european construction, the euro being a “ money without a state ”. the spreads between the government bond yields of the fiscally weak countries and the german bund soared. a serious crisis of confidence in the very survival of the single currency ensued, with adverse consequences for the real economy. the situation deteriorated most severely in the banking systems of the countries most directly affected by the tensions, whose perceived credit standing soon aligned with that of their sovereigns ; wholesale funding conditions deteriorated sharply, cross - border interbank lending all but dried up. there emerged a perverse loop between fragile public finances, weak economic performance, and deteriorating bank conditions. given the risk of a severe credit tightening, the governing council of the ecb took resolute action. with two special refinancing operations in december 2011 and february 2012 the eurosystem supplied banks with a trillion euros in three - year funds ( over €500 billion net of the volume of funds reimbursed in other refinancing operations ). the liquidity injection was effective : sovereign spreads dropped and the wholesale markets revived. bis central bankers ’ speeches europe ’ s response to the sovereign debt crisis has been twofold. domestically, to rein in the risks from unsustainable public finances, individual countries have committed to prudent fiscal policies and structural reform to enhance competitiveness. at european union level, to dispel the fears of euro break - up and “ redenomination risk ”, a reform of economic governance has been undertaken. national action on the sovereign debt crisis has been heterogeneous. fiscal adjustment was indispensable in the more economically fragile countries, including italy, to ward off the risk of losing access to the market, which would have precipitated the crisis. its negative shortterm effect on economic activity was the price paid for averting more serious consequences. with the benefit of hindsight it is clear that the reform of european governance was long overdue. the long - dormant process was effectively set in motion by the sovereign debt crisis. despite hesitancy, overlaps and redundancies, within a very short span of time definite progress has been achieved. together with the efforts at national level, the reform of european governance has begun to rebuild trust among member states. the strengthening of the budgetary rules, which has reinforced existing

union countries. – ( 2 ) return on equity. – ( 3 ) ratio of common equity tier 1 capital to risk - weighted assets. the situation has also improved for the less significant institutions directly supervised by banca d ’ italia. capital ratios have increased, in part at our behest. this has reflected changes in the risk profiles, above all the risk of a rapid increase in interest rates, which did then materialize. we have stepped up our supervision to prevent and promptly address cases of banks in distress that can be traced back to weaknesses in corporate governance and in internal controls. for the banking system as a whole, the improvements in its income and capital position reflect a multi - year process for restoring efficiency and strengthening balance sheets. the sound condition of banks today is a strong point for the entire italian economy. over the past few months, however, i have made it clear that we must not let our guard down. i repeat : we cannot be caught unprepared by tensions that could arise in the future. in april, we asked italian banks to set up a macroprudential capital buffer of 1. 0 per cent of domestic exposures by mid - 2025. 27 the increase in the requirements will have a negligible impact on credit supply and will make it possible to limit the negative effects of adverse systemic events : if they occur, the bank could authorize the release of the buffer, thus maintaining the capacity of banks to support the real economy. with regard to the risks linked to the macroeconomic situation, there are two main aspects to consider. banca d ’ italia the governor ’ s concluding remarks annual report 2023 the first is credit quality. the italian real estate market is not showing any worrying signs like those emerging in the commercial real estate sector in other countries. however, for total loans, there has been an increase in the share of loans that are performing but have recorded late payments, especially among customers with adjustable - rate loans. it is estimated that for firms, the annual flow of non - performing loans as a percentage of total loans will increase over the next two years by 1 percentage point, from the current 1. 7 per cent. loan loss provisions will remain low as a share of revenues. looking ahead, it remains crucial for banks to recognize expected losses promptly, by applying accounting standards scrupulously. the second aspect is liquidity. the repayment of targeted longer - term refinancing operations is taking place in an orderly manner.