. bis central bankers ’ speeches concluding remarks economic activity in the euro area is on the path to recovery, but the pace is slow and differs from country to country. in italy, as in other euro - area economies, conditions remain difficult, despite some signs of stabilization. the timing and strength of the recovery will depend not only on continuous and effective reform but also on the availability of sufficient financial support for businesses. decisive progress towards the completion of the european union could halt the downward spiral caused by the strains on sovereign borrowers and on financial intermediaries, encouraging a return to more favourable credit conditions. the banking union is the first important step towards a budgetary, and ultimately a political, union through a process that should not be taken as purely sequential : on the one hand, the pooling of national resources is necessary to complete the banking union but, on the other, strong signals of political union would counter the perception of reversibility risk for the single currency. it is a delicate passage, to be undertaken with rigour and responsibility, avoiding errors which could rekindle tensions on the financial markets. the italian banking system is moving along this path, beset by structural problems and weakened by the long recession. but the system can count, partly thanks to the work of the bank of italy, on strengthened capital and prudent evaluations of the quality of its assets. there is no immediate, simple solution that will allow the banks to fully resume their role of supporting economic activity. they must continue to work towards restoring profitability and strengthening capital, as well as adapting their corporate strategies to the changed technological and market conditions. today, the banks are also being called upon to rapidly change pace. bis central bankers ’ speeches

annual convention of the asociacion de mercados financieros recent developments and open questions in the european banking industry speech by governor of the bank of italy ignazio visco madrid, 6 november 2017 ladies and gentlemen, it is an honour and a privilege to address this assembly. i would like to express my gratitude to governor linde and president prados del amo for the kind invitation to be here today. i will take this opportunity to share with you some reflections on the state of the european banking industry, of which spanish banks are a fundamental part. i will start with some considerations on the evolving structure of the sector ; i will then move on to the issue of profitability ; and i will conclude with my take on the main open questions we need to address over the coming months. the long journey : evolving structure of the european banking industry since the financial crisis since the global financial crisis, the european banking industry has undergone a considerable structural transformation, along three closely intertwined dimensions. the first one concerns the profound changes in both regulation and institutional set - ups. capital requirements have been raised, leverage has been limited, and stringent liquidity requirements have been established. the institutional set - up has also been completely modified. in a very short time frame, the banking union has been launched, with the introduction of the single supervisory and single resolution mechanisms ( ssm, srm ). a new framework for managing banking crises has been adopted. although the third pillar of the banking union – the european deposit insurance scheme – is still lacking and in other dimensions advancement is slow, the overall progress has been remarkable. it would perhaps have been unimaginable only a few years ago and testifies to the strong determination to continue along the path to european integration. the second dimension of structural change relates to the contracting size of the european banking sector, which not only reflects the tightening of regulation but also other factors, such as the need for banks to clean up their balance sheets, the impact of technology, as well as the increased role of non - bank financing. in the aftermath of the crisis, the total assets of the euro area banking sector declined significantly both in absolute terms, by 15 per cent between 2008 and 2016, and relative to gdp ; leverage has been reduced across the board, and especially in countries where it was higher. the downsizing of the european banking sector is also the result of important changes in its industrial organisation, which represent the third dimension of structural transformation.