relatively short time. the terms of the italian instruments are in line with those offered by other european countries. i expect banks to make use of them in suitable amounts. the recapitalization law also provides for monitoring the transactions and their effects on the economy and institutes special observatories at prefectures, with the participation of the interested parties. the bank of italy will supply the ministry for the economy and finance with data and analyses on the evolution of credit and borrowing costs on a regional basis, as an additional supplement to the ample geographically disaggregated data already released in its publications. the statistical information will allow any specific situations of tension to be identified. it is essential that analysis of credit conditions at local level not stray into a role of pressuring banks, prompting them to relax the standards of sound and prudent management in the selection of borrowers. in my opinion, political and administrative interference in assessments of individual cases of creditworthiness must be avoided. lending is and must remain an entrepreneurial activity, based on a prudent, professional evaluation of the validity of companies ’ plans. sooner or later, imprudent banks end up in distress and also cease lending. but the test posed by the crisis is severe and requires the ability to be good bankers even when the economy is doing badly. the inevitable deterioration in loan quality due to the recession calls for far - sighted choices : just keeping the accounts straight is not enough. firm support for creditworthy customers prevents an excessive credit squeeze, which would aggravate the recession, thereby worsening the position of banks ’ customers. as i have already said, every opportunity must be taken to strengthen the capital of banks, choosing the most appropriate form in each case : recourse to the market, retained earnings, or the instruments offered by the state. the restoration of confidence in the banking system is a global, not a national question. in my view, four conditions are essential. first, the uncertainty still surrounding the value of the most troubled assets on banks ’ balance sheets must be dispelled ; this must become an integral part of public interventions in support of the financial system. it is indispensable, especially in europe, that similar measures be based on common principles, in order to avert competitive disparities between intermediaries of different countries and between banks exposed in differing degrees to the problem of impaired assets. second, in determining recapitalization objectives, it is vital that the definitions of bank

the bank of italy soon, before the end of next september. important private initiatives undertaken recently, such as the establishment of the atlante fund and other instruments aimed at supporting ailing banks ( including those in the mutual bank sector ), seek to help banks successfully navigate this delicate transitional phase. the initiatives come as a response to the new european crisis management framework, whose rigid application restricts states ’ ability to intervene, even when the aim is to avoid contagion and maintain financial stability. but there is still much to be done to improve banks ’ industrial strategies. the stress test of europe ’ s largest banks, coordinated by the eba and conducted by the ecb on the euro area ’ s “ significant ” institutions, has almost been completed. the results will be published at the end of this month. exercises of this kind are now a standard part of the supervisory toolbox ; the stress test results, along with many other quantitative and qualitative factors, are used by the supervisory authorities to form a comprehensive assessment of the situation of individual banks. since stress testing is just one of many factors considered by supervisors, the results for the banks tested must be analysed and interpreted in detail. bis central bankers ’ speeches stress tests are hypothetical exercises that are based on highly adverse macroeconomic scenarios and generally have the greatest impact when the economy is emerging from a protracted, severe recession, as in italy. in designing the test, the eba used a static balancesheet approach, i. e., one that deliberately disregards the measures that banks would surely adopt over the 3 - year period under consideration to mitigate the negative effects of the hypothetical shock. the authorities in charge of the exercise have clarified that, unlike in the past, any capital guidance derived from the stress test outcomes does not in itself constitute a binding capital requirement to be met by a certain date. in any case, the risk that the exercise could trigger procyclical effects in a fragile macroeconomic environment is to be avoided. in response to the market uncertainty that followed the uk referendum, the italian government notified the european commission of its plan, which was approved, to guarantee new bank bond issues until the end of this year and only where strictly needed. as in the past, the banks that take advantage of the guarantee, which will be priced at market terms, must comply with the european state - aid rules. european legislation also allows states to take precautionary measures, including recapitalization,