are important steps to facilitate further consolidation of the sector which are welcomed in italy and elsewhere in the euro area. excess capacity and fragmentation along national lines are, to some extent, hampering the profitability and performance of some euro area banking sectors. 13the banking union, including single supervision and resolution mechanisms, in principle provides ideal conditions for banks to reap the benefits of new cross - border merger and acquisition opportunities. however, progress in both domestic and, in particular, cross - border bank consolidation remains limited to date. ultimately, the euro area economy needs banks that are large and efficient enough to operate and diversify risks on a cross - border basis within a european single market, but small enough to be resolved with the resources of the single resolution fund. this would make the most of the banking union while improving the trade - off between financial stability and economic efficiency. one potential deterrent of further consolidation at the domestic and euro area level is the high npl stock that i just mentioned, which may reduce the attractiveness of potential targets in some jurisdictions. this is another reason why resolving the npl problem is of utmost importance. resolving the npl problem resolution of the npl problem is first and foremost a task for the banks. should npl markets be fully efficient, it would be straightforward to sell the npls to other investors. we know however, that the npl markets in the eu are shallow. notwithstanding the recent pick - up in transactions, only a small fraction – less than 10 % – of the stock of eu npls changed hands over the last twelve months. 14 notwithstanding the existing obstacles, a wide range of solutions to the npl problem is available to banks and policy - makers. internal work - out would always feature among the available tools. in this vein, ecb banking supervision has recently issued guidance to improve bank capabilities in working out npls, as these vary significantly. direct sales could be complemented by securitisations, asset management companies, and npl trading platforms that may be used to transfer the risk of npl work - out outside of the banking sector to those who may be better suited to recover value. clearly, more needs to be done to fully unlock the potential of market - based solutions to the npl issues. due to asymmetric information between the investor and the seller of npls, and to very long duration and high cost of debt enforcement procedures, there is a wide bid - ask spread in the npl markets. the

subordinated debt as stated in the european commission ’ s communication of july 2013, where possible exemptions are nevertheless foreseen ( paragraph 45 ). let me remark here that, in the steady state, this would not be a major issue as “ bail - in - able ” debt would in principle only be sold to knowledgeable, qualifying investors, capable of understanding the related risks. that unfortunately, is now not the case : our resolution rules entered into force before the requirements for mrel i. e. the specification of “ bail - in - able ” securities, entered into force. however, the rules give scope to address valid concerns about retail investors through compensation. the european commission recently announced what could become an important initiative : a proposal regarding a comprehensive strategy to deal with npls in europe, including a blueprint for national amcs accompanied by a clarification of the regulatory aspects involved. the new european regulation on recovery and resolution deserves full support as it represents a change from easy public bailouts to a new culture of private bail - in, minimizing moral hazard. notwithstanding this, the regulation does not ignore financial stability considerations. “ we have to bear in mind that it is not only direct public support for banks that has a cost for taxpayers, but also financial instability – indeed, the costs of the latter may, in some circumstances, be higher. compare the worldwide costs for taxpayers stemming from the absence of public intervention to rescue lehman brothers, with the zero cost for taxpayers following the usd 700 billion injection into u. s. banks in 2008 ( which have been totally repaid by the banks ). in other words, financial instability can have a meaningful cost to taxpayers even if it is not visible in the very short - term – a notion that all policy - makers should keep in mind. 17 5 / 7 bis central bankers'speeches conclusion i have highlighted a number of structural, cyclical and legacy - related challenges confronting the euro area banking sector. we need to recognise the progresses made in increasing robustness of euro area banks, the establishment of the banking union, the firming of the economic recovery due to the ecb monetary policy, with the consequent improvement in banks ’ future profitability as recognised by the stock market in the recent quarters. much still needs to be done to fully overcome the consequences of the financial crisis and fully restore the condition of all national banking sectors. the first line of response obviously lies with the banks that have to adjust their business model to the