between 2008 and 2016 the number of euro area banks declined by around 25 per cent, with spain being one of the countries where the reduction was greatest. the number of branches is also decreasing and the use of resources is generally becoming more efficient. overall, this set of structural changes is delivering positive results. the european banking system is enhancing its resilience and all actors involved are contributing : regulators, banks, and supervisors. there is, however, no room for complacency. as i will discuss next, legacies from the crisis still linger and remaining vulnerabilities call for continued vigilance and unwavering determination on all sides. out of the woods? not yet : some crisis legacies are still with us the issue that epitomises the problems left on the table is low profitability. on the aggregate, the return on equity of euro area banks has not yet recovered since the financial and sovereign crises, and remains low by historical and international standards. there are, however, important heterogeneities : small and medium - sized banks are still suffering, while larger intermediaries are recovering. in 2017, net interest income improved for some intermediaries, while fee income, supported by the asset management business, increased more broadly. profitability is also well below estimates of the cost of equity for most banks. despite the differences across banks and jurisdictions – in spain, for example, the gap is relatively smaller than elsewhere – the problem extends across europe. the causes of the phenomenon can be traced back to both transitory factors – such as the legacy assets from the adverse cyclical developments – and structural elements, including the need to adjust the business model to technological change and to the new regulatory environment. the ongoing recovery of the global and the euro area economies contributes to addressing the transitory impediments. however, analyses and simulations from various sources seem to suggest that for a non - negligible part of the european banking sector this may not suffice to recover adequate levels of profitability. going forward, the target for banks ’ profitability may actually prove to be lower than the one deemed appropriate by some international institutions, such as the imf. indeed, once the transition to the new regulatory regime is completed, and a safer banking system has emerged from the reforms, investors might reduce the returns that they expect to receive from banks. in other words, in future months the “ reform dividend ” may translate into a lower cost of equity.

statement by ignazio visco, governor of the bank of italy constituency of albania, greece, italy, malta, portugal, san marino, and timor - leste development committee, washington d. c., october 8, 2016 1. introduction global growth remains disappointingly anaemic. adverse long - term trends in advanced economies – low productivity growth, aging populations – combined with the slowdown in emerging economies and especially heightened geopolitical risks result in a high degree of uncertainty which prompt firms to scale back their investment plans. if we do not act to reverse this situation a self - fulfilling trap of low growth may take hold. policies both on the supply and demand side are crucial. to take full advantage of the very accommodative stance of monetary policies other policies to support demand and especially appropriate structural reforms should be implemented. the reduction in global poverty experienced in the last couple of decades is a success. it has been facilitated by booming international trade and rapid growth, especially in some populous emerging economies. however, not everybody has benefitted. guiding political and economic institutions in a more inclusive direction is essential to limiting adjustment costs and facilitating sectorial reallocation. maintaining market openness to revitalise trade in goods and services may enhance economic growth. multilateral cooperation among all economies is essential to generate better outcomes and the world bank should continue to play an important role towards this end. 2. a better and more legitimate bank a “ better ” bank identifies sound examples of previous interventions, using data - driven and evidence - based analysis to systematically assess their degree of success and to implement the lessons learnt. this is necessary not only for proposing transformative development solutions, but also for appropriately managing risks. the recent approval of the new environmental and social safeguards, if properly implemented, may represent an important step in this direction. we welcome the agreement on the dynamic formula in the context of the periodic revision of bank shareholding. introducing a dynamic adjustment mechanism, which builds on the bank ’ s development mission and global economic reality, will strengthen the ibrd ’ s legitimacy as a global player. recognising support for its development mission is essential for strengthening incentives to foster future contributions. the compression factor acknowledges the cooperative foundation of the ibrd and ensures an equitable representation of all shareholders for the years to come. 3. the contribution of ida to development over the last decades ida has provided a fundamental contribution to the long - term agenda of poverty alleviation. it should continue to