financial condition eroded, their creditors, domestic and foreign, looked at them more critically, and began to withdraw their funding. in short, the deteriorating condition of borrowers hurt the banking system, which increased economic harm to the rest of these countries ’ economies. two other features of these countries ’ financial systems have compounded the problems caused by poor lending practices and inadequate supervision. first, standards for the transparency and disclosure of private financial information were extremely lax. it was difficult for creditors, foreign or domestic, to distinguish good risks from bad, and this caused them to both grant and, later, withdraw credit from borrowers within these countries without full knowledge of borrowers ’ creditworthiness. this latter reaction exacerbated the crisis for the businesses and citizens of these countries. second, creditors to banks no doubt relied to some extent on a public safety net to back up their claims. this was true not only of small depositors, but also of foreign bank creditors. as it turned out, the presumption of public support was at least to some extent misplaced. therefore, participation in the global banking market did not work to save these countries from fundamental information, banking and supervisory weakness. the fact that the information, credit and supervisory cultures had not yet changed, even with the participation of foreign banks and the extension of inter - bank credit, meant that ultimately these financial systems were proved fundamentally flawed. we have also learned, or relearned, other lessons because of the handling of these crises. first, prolonged delay in tackling systemic banking sector weakness invites further weakness, not strengthening. delay in the hopes that the economy will grow banks out of their problems, is attractive, but is actually a trap. because of the credit allocation role that banks play in many economies, delay allows problems to grow. inefficient banks are allowed to allocate credit inefficiently, and open, insolvent banks, in effect distribute taxpayer money to bank shareholders, employees and borrowers. second, extra attention is required to solve systemic bank weaknesses because of the inherent pitfalls associated with banks that are “ too - big - to - fail ”. because the threat of closing very large banks may not be credible, it may be more difficult for supervisors to pressure very large banks to improve their operations. as a consequence, supervisors need to have clear legal authority, and political support, to order banks to take a variety of steps to improve their operations. this is a lesson that

creditworthiness of firms, impairing the quality of bank loans. it would be illusory to think that the link between sovereign risk and banking risk can be broken with measures that push banks to drastically reduce their direct exposures. moreover, in the most difficult years of the crisis, italian banks, like those of other countries, swam against the tide, and made a profit, buying government bonds when tensions rose and yields increased. when the conditions changed, they began to sell them. last may, italian banks held slightly more than €300 billion worth of domestic government bonds in their portfolios, compared with the €400 billion reached at the beginning of 2015. loan quality the continued economic growth has led to a gradual improvement in the quality of bank credit. the ratio of non - performing loans, net of loan - loss provisions, to total loans system - wide, which had fallen by about 4 percentage points between the peak of 2015 and the end of last year, decreased by almost 1 percentage point more in the first quarter of this year, to stand at 5. 3 per cent. the total amount of net npls fell to just over €110 billion, down from €200 billion at the end of 2015. about half of the amount comprises exposures classified as unlikely - to - pay, some of which could become performing again. for the less significant banks the share of all npls ( 7. 1 per cent ) remains higher than that recorded by the significant banking groups ( 5. 1 per cent ). the development of the secondary market is making an important contribution to reducing the number of npls. this market in turn benefits from the state guarantee on senior debt issues deriving from the securitization of bad loans ( gacs ). the gross value of the bad loans securitized under the gacs system was approximately €32 billion and it is expected to increase considerably in the months to come. in the last few days, the government has asked the european commission to extend the possibility of using gacs beyond the current deadline of september. the improvements made thus far should be consolidated and strengthened. more active npl management on the part of banks remains fundamental, including in the light of the regulatory changes proposed by the european commission and the new supervisory expectations of the single supervisory mechanism supplementing the guidelines on npl management published in march 2017. the strategies proposed by the banks will be assessed on a case - by - case basis as part of ordinary supervisory activity and