even more important to seek the necessary complementarities with good regulation and supervision. reduction of the risks for customers also depends on the reform of the rules governing non - bank intermediaries that grant credit, financial agents and loan brokers. in recent years the bank has paid a high and increasing level of attention to such reform. the objective is to have rules that encourage a smaller number of sound and professional operators, together with reliable and diversified channels of distribution that can also stimulate competition in the sector. we have worked to permit the prompt application of the new rules. the usual cooperation was provided to the ministry for the economy and finance for the drafting of the implementing measures within its sphere of competence ; the framework for the supervisory rules to be applied to financial intermediaries is being prepared after a first round of public consultation ; the necessary support has been provided for the start of operations of the financial agents and loan brokers oversight body, which a few days ago began to accept new registrations. in june the council of ministers approved the first reading of a measure that introduces further amendments to the text of the reform and is now being examined by parliament. as regards the rules for financial agents and credit brokers, care must be taken to avoid uncertainty about the duties and powers of supervision and interpretative and applicative difficulties for the market. * * * the italian economy needs intermediaries and financial markets that allocate the savings entrusted to them in the best possible way and at the lowest possible cost. in this period banks are being called on to make difficult decisions : to ensure viable businesses continue to be financed and to avoid prolonging support for those destined to fail. this is the essence of sound and prudent management. the timing and strength of the economic recovery also depend on the outcome of these choices. in italy the ratio of corporate debt to gdp is similar to the level in the other leading euro - area economies. here bank loans to the productive sector are a larger share of the total, a difference that is only partly explained by the greater presence of small and medium - sized firms. for many businesses bank loans are the sole source of external funding, even though their size and characteristics are comparable to those of firms that in other countries raise funds directly on the capital markets. a very large portion of the risk stemming from business activities falls on banks ’ balance sheets, and in times of recession translates into impaired loans, bad debts and losses, with serious repercussions on the flow

to 6. 2 per cent of total loans to non - bank customers, nearly a full percentage point more than a year earlier. for the top five banking groups the bad debt ratio was 6. 9 per cent, for the other banks 5. 0 per cent. the stock of impaired positions ( bad debts and substandard, overdue and restructured loans ) was equal to 11. 2 per cent of total loans to non - bank customers at the end of 2011, this too representing an increase of about one percentage point in the year. international comparison of the balance - sheet incidence of impaired loans is distorted by cross - country differences in practices. the italian definition of the aggregate is broad, including assets that are still generating income. moreover, the slowness of legal proceedings for credit recovery in italy means bad debts remain on the balance sheet longer, thereby raising the level recorded in the accounts. in any case, having a large share of impaired claims in balance sheets puts pressure on banks ’ capital and liquidity. the first safeguard against the risk of deteriorating credit quality is effective borrower screening based on objective criteria, robust valuation models and optimal utilization of the information available to assess customers ’ prospects. during the first half of 2012 the bank of italy conducted targeted inspections of credit risk at 14 intermediaries that account for 59 per cent of lending by italian banking groups. the inspections examined the banks ’ procedures and controls during the granting of loans, the adequacy of their internal risk measurement models, the quantification of risk assets, and the adequacy of their provisioning policies. the new rules on related - party transactions, which will be fully in effect by the end of this year, will help to strengthen credit quality and foster greater impartiality in the allocation of credit. the bad debt cover ratio – the ratio of value adjustments to exposures – declined last year from 57. 2 to 55. 7 per cent. this is higher than in the early 1990s but lower than the ratio registered before the outbreak of the financial crisis. in times of recession, when bad debts increase more rapidly, such a decline is normal, at least in part, but banks ’ value adjustments for deteriorating credit quality ( which were equal to €18. 4 billion in 2010 and €19. 3 billion in 2011 ) must continue to grow. even during the present phase the increase in provisioning can be funded out of banks ’ ordinary earnings. effective policy for provisioning not only strengthens balance