will come into operation in 2015. the handling of banking crises will involve numerous national and european institutions participating in the context of a single resolution board. provision is made for recourse to a fund made up of contributions paid in by the banks themselves. even though the decision - making process appears complex and the pooled resources limited, the compromise reached is a further step towards the completion of banking union. together with the ecb and the other national supervisory authorities, we are now conducting the comprehensive assessment of the most important euro - area banks. the aim of the exercise is to increase the transparency and reliability of banks ’ balance sheets and increase the market ’ s confidence in the soundness of the european banking system, thereby contributing to the recovery of lending to the economy. the key aspects of the comprehensive assessment are an asset quality review and a stress test of the banks ’ balance sheets. the exercise under way is of unprecedented complexity, both in terms of the volume of activities to be carried out and for their concentration in time. it considers a wide range of bank assets, going from loans to households and firms, to government securities and complex financial instruments, so - called third - level assets. in the cases where the assessment shows that a bank needs to raise its capital ratios, this can be done in several ways, ranging from not distributing profits to the disposal of nonstrategic assets, the cutting of costs and the issue of new equity. the manner of carrying out these interventions and their timing will be determined in relation to the nature of the capital weakness and according to whether it derived from value adjustments to balance - sheet items or from the results of stress tests. capital - raising measures will have to be agreed with the national supervisory authorities. the credibility of the exercise and its success in restoring confidence in the soundness of the european banking system require that instruments of public intervention be available to act as financial backstops, as established by the european council in june 2013 and reaffirmed by the ecofin council in november. they will have to conform with the basic principles of national and european law, with the ultimate objective of ensuring financial stability. the results of the comprehensive assessment of banks ’ balance sheets will be published in october. the exercise is already making a contribution to the strengthening of banks ’ capital bases. the effects on the supply of credit in the short term will need to be carefully monitored. in the longer run, the positive relationship between banks ’ capital and growth in lending will be reinforced. the challenges

been placed directly in liquidation and 55 under special administration ; about half the crisis procedures that have been completed saw the banks return to ordinary operations, including by way of takeovers. the continuity of customer services was guaranteed together with the protection of depositors. in the last two years 340 inspections were carried out at banks that accounted for 80 per cent of the banking system ’ s total assets. in 63 cases serious shortcomings were found in banks ’ corporate governance. in 45 of these there were irregularities of a possibly criminal nature that were promptly reported to the judicial authorities. with the proper distinction of functions and instruments, cooperation with the magistracy is intense. where necessary the bank of italy requests banks to radically renew their board of directors, strengthen their organizational structure and capital base, and draw up new business plans. this makes it possible to avoid recourse to crisis procedures, which might be required if the problems found persisted. our action would become even more effective with the attribution of the power to remove a bank ’ s directors when necessary and on the basis of convincing evidence, as is envisaged in the draft law for the transposition of the european capital requirements directive. italy ’ s large banks, as well as granting loans, often hold equity interests in non - financial firms. such shareholdings must not distort lending decisions or delay the emergence of borrowers ’ difficulties. the risks associated with these relationships, in the same way as for those deriving from dealings with counterparties closely related to banks, must be carefully monitored by the latter ’ s governing bodies. the bank of italy cannot and must not assess individual lending decisions in advance, but lays down rules for related - party transactions and checks that they are complied with. the rules are intended to prevent allocative distortions and minimize conflicts of interest ; they establish quantitative limits to risk, strengthened decision - making procedures, organizational safeguards and obligations to inform the supervisory authority. bis central bankers ’ speeches banking union and the implementation of the single supervisory mechanism the ongoing construction of the single supervisory mechanism is driving forward the banking union project, one aim of which is to counter the fragmentation of the euro area ’ s financial markets. the new european supervisory system shares the basic principles of the approach followed in italy : emphasis on close integration of on - and off - site controls, quantitative and qualitative assessment of risks, and close linkage between the results of analyses and remedial action. the single resolution mechanism for crises