, were, on average, well above the regulatory minimums and they have remained so. bank funding, more than 60 per cent of which is made up of deposits by resident customers ( and which grew significantly as a result of the pandemic ) has been more than sufficient to finance loans. market funding, while limited in volume terms, has continued to be available at very low interest rates. in the face of a dramatically worsened economic outlook, which suddenly heightened the risk of insolvency for firms, the banking system quickly increased its loan loss provisions, although with some differences between banks. profits in 2020 were inevitably affected, though capital ratios were not. dividend distribution was very prudent, mainly owing to the recommendations issued by the european systemic risk board, the single supervisory mechanism and the bank of italy, supported by granular supervisory action. public loan guarantees contributed to limiting riskweighted assets. at the end of june this year, the cet1 ratio was 15. 2 per cent on average, more than one percentage point higher than at the end of 2019. in the first half of 2021, banks ’ profits returned to growth, both because the cost of credit risk went down considerably, mainly thanks to the sizeable provisions made in 2020, and as a result of the positive trend in trading profits. average roe reached 8. 9 per cent on an annualised basis. 1 / 8 bis central bankers'speeches some improvements are probably transitory and, as a result, overall profitability in 2021 could be lower than in the first half of the year. the roe expected by financial analysts for the main italian banks stands at around 6 per cent, a similar level to that recorded in 2019. the gradual phasing out of the support measures, moratoriums and guarantees will surely bring to light cases of repayment difficulties. however, it is to be expected that the deterioration in credit quality will be much less marked than it was in previous crises. banks have started paying out dividends again since the supervisory authorities, having carefully assessed the improving economic outlook, withdrew the exceptional restrictions they had previously recommended. in any case, we expect the banks to preserve adequate capital in relation to risks ; it is essential that they continue to adopt a prudent approach to loan loss provisions. 2. the basel reforms the regulatory reforms introduced in recent years by the basel committee – known collectively as basel iii – contributed to the capacity of italian and international banks to tackle the crisis of 2020. these

piero cipollone : towards psd3 - the dynamics of digitalized payment systems speech by mr piero cipollone, deputy governor of the bank of italy, at the international conference roma tre university, rome, 14 april 2023. * * * good morning everyone, i would like to thank the organizers for inviting me to this conference to talk about the path towards psd3. the payments sector is a key component of the european single market. because of its lingering fragmentation along national borders, it has been the focus of several technical and regulatory interventions aimed at improving harmonization among member states. during this journey, psd2 has been a landmark : it has brought about greater harmonization and competition in payment services. however, two more milestones need to be achieved before we can claim the creation of a single eu retail payments market : to complete the job and thereby allow innovation to be as disruptive as it was meant to be in psd2 and to embed in the regulation the dramatic changes in the technological landscape since psd2 came into force. as for completing the job, three hurdles need to be overcome : first, the lack of full harmonization and complete application of the rules across member states ; as a matter of fact, the payment services framework still needs to be fully aligned with other eu policies and legislation : i am referring in particular to the general data protection regulation - gdpr, the electronic money directive - emd2 and the market in cryptoassets regulation - micar. the cost of payment services is the second obstacle ; it can be further reduced by fostering stronger competition within and across member states. third, the role of technological providers ( including bigtechs ) in the payments sector still needs to be clarified. as regards the technological shift, we should consider that psd2 entered into force in italy in 2018 ; back then, worlds such as smart contracts, defi, consensus mechanism, dao and dlts did not even exist and, when they did, they were unknown to most of us. today they are part of everyday jargon and they have made their way into important legislation. as a matter of fact, the pilot regime entered into force on march 23. this is a legal framework that supports those who want to use dlts to issue, trade, regulate and store assets. with the decree enacted on march 17, italy was able to make the needed adjustment to its domestic legislation so that our financial industry can take advantage