comes from surveys of banks and businesses alike. our estimates indicate that the deterioration in lending conditions, considering both the rise in loan rates and the diminished availability of credit, cut 1 percentage point from gdp growth in 2012. the main obstacle to loan supply is the increase in credit risk as the recession drags on. in the first quarter of 2013 the annual default rate rose to 2. 8 per cent for total lending and to 4. 5 per cent for lending to businesses. according to the leading indicators, the flow of bad debts will remain high for the rest of the year. the present state of the credit market is a well - known case in the economic literature : a situation in which uncertain economic outlook, high default risk and difficulty of assessing the soundness of individual borrowers generate adverse selection and heighten banks ’ risk aversion, prompting restrictive lending policies. 1 unlike the pattern seen in the past, the j. stiglitz and a. weiss, “ credit rationing in markets with imperfect information ”, the american economic review ( 1981 ). bis central bankers ’ speeches reduced availability of credit is also affecting, albeit to a lesser extent, large firms and firms with balanced financial positions. the credit market will continue to experience supply - side tensions in the months to come. past experience has shown that loan quality tends to continue deteriorating long after the cyclical upswing has begun. moreover, while the new regulations on banks ’ capital and liquidity ratios will bring stability to the financial system once they are fully operational, in the short term they may act as a brake on loan growth. and market pressure on banks to reduce their reliance on wholesale funding also spurs banks to reduce the size of their balance sheets in a pro - cyclical manner. the first step towards setting the lending cycle in motion again – in the interest of firms and banks alike – is a firm commitment on the part of the banks to adopt lending policies that take fully into account their customers ’ growth prospects. each bank should be aware of the negative externalities for the whole italian economy, and for itself, of an indiscriminate credit squeeze. given the severe tensions that have emerged on the international financial and italian sovereign debt markets in recent months, the capital strengthening prompted by the bank of italy ’ s supervisory action has allowed italian banks to maintain investor confidence and attract external finance at low cost. 2 however, this may not be sufficient, on its own, to overcome the credit supply bottlenecks. the “ market

its part. there can be no enduring recovery without adequate financial support to firms. the effects of the recession on banks ’ balance sheets, on the availability of credit, must be counteracted with vigorous action to rationalize costs, innovate business models, strengthen the ability to select sound firms with competitive business projects. the tensions in credit supply increase the incentives for firms ’ to access and make greater use of the capital market. the diversification of sources of financing demands an important commitment from entrepreneurs to make financial statements transparent, open up to outside investors, strengthen the equity capital base. the markets would be unwilling today to support opaque or undercapitalized initiatives. the development of the capital markets is in the interest of the banks themselves. by offering advisory services for direct financing, they can reinforce, not weaken, their customer relationships with firms and their own role within a more diversified financial system. and in this way they can trace the path for returning to growth. bis central bankers ’ speeches