ignazio visco : overview of economic and financial developments in italy concluding remarks by mr ignazio visco, governor of the bank of italy, at the ordinary meeting of shareholders 2014 – 121st financial year, bank of italy, rome, 26 may 2015. * * * ladies and gentlemen, last year was one of important changes : in europe, by reason of the evolving institutional context and major economic and monetary policy decisions ; in italy, by reason of the quickening pace of the reform effort. it was a year of difficult choices, whose early results – significant but still fragile – must be resolutely defended. the economic recovery that got under way in italy in the first quarter of this year is likely to strengthen in the current and subsequent quarters. for the bank of italy, 2014 was a year of engagement in the euro area in formulating and implementing monetary policy and launching the single supervisory mechanism, and in italy in enhancing our services to the national community and further modernizing our organization and operations. the bank of italy ’ s total assets declined by nearly €24 billion, to €530. 6 billion, reflecting a reduction in eurosystem refinancing operations. this year the implementation of the extraordinary securities purchase programmes will expand our balance sheet again. our gross profit fell from €6. 9 billion to just under €6 billion in 2014. today the board of directors proposes that this meeting allocate €1. 8 billion to general risk provisions and €750 million to statutory reserves. taking market conditions into account, it also proposes to distribute dividends of €340 million to shareholders. on the basis of the indications laid down in the statute, €1. 9 billion goes to the state, in addition to a tax liability of €1. 2 billion. at its meeting on 30 april the board of directors determined that in future years dividends should ordinarily be in the range between last year ’ s and this year ’ s amounts, conditional on the size of net profit and on capitalization needs, unless the general conditions of the financial markets or the bank ’ s profitability have undergone significant changes. the commencement of the redistribution of holdings of the bank ’ s shares, as required by law, may be facilitated by awareness of this orientation. meanwhile the bank is working on the dematerialization of the shares. once the new system is fully phased in, transfers will be made electronically in a dedicated market segment, so as to make the

structure of the economy and the consequent difficulties of assessing the risks and opportunities of financial investments. banks ’ leverage, measured as the ratio of total liabilities to own funds, is declining in all the major countries. in the united states, that of the ten largest banks has been halved since 2007 ; the effects on the overall financing of the economy have been limited, thanks to the contribution of the markets ; bonds account for more than 40 per cent of firms ’ borrowing. banks ’ leverage has also fallen sharply in the euro area, as a result of both capital increases and the contraction in credit. since 2007 loans to firms have diminished in relation to gdp by five percentage points, to 42 per cent. the compensatory possibilities offered by the financial market are modest : at the end of 2014 bonds accounted for just over 10 per cent of firms ’ financial debt. failing a marked increase in their self - financing capacity, an overly rapid deleveraging of banks ’ balance sheets would end up having procyclical effects on the economy, threatening to create a vicious circle between the reduction of credit and the erosion of productive activity. the construction of a diversified system that can offer the economy the necessary financial support – not in the shadows but in full transparency – cannot be deferred. the european commission has put forward proposals for the creation of a capital markets union by 2019. the proposed reforms aim at removing the obstacles to equity and debt capital raising, especially on the part of small and medium - sized enterprises and across borders. the success of the initiative requires that progress also be made in the harmonization of company, bankruptcy and tax laws. in italy, important measures have been taken to strengthen the capital market. equity issuance by firms has been encouraged by mostly eliminating the tax advantages of debt financing. tax benefits have also been introduced for stock - exchange listing and for venture capital funds, along with incentives for bond issuance by unlisted companies. the possibility of making loans has been extended to insurance companies, and credit funds have been regulated. an additional contribution will come from the reform of non - bank financial intermediation, implementation of which is at an advanced stage. the results of these measures are positive, but much work remains to be done, including in the field of financial information and education. bis central bankers ’ speeches supervision and banking union the single supervisory mechanism became operational on 4 november 2014. its launch was preceded by the comprehensive assessment of the balance sheets of the euro - area