bank recovery and resolution directive spells out clear rules on who has to bear the costs when a bank fails. in a nutshell : bail - out is out and bail - in is in. in future, shareholders and creditors will be first in line when it comes to bearing losses ; taxpayers will be last in line. this directive will be implemented in germany in early 2015 ; the latest possible date for implementation in other countries is 2016. also from 2016 onwards, european banking supervision will be supplemented with a european resolution mechanism for banks. from then on, the banking union will rest on two pillars and provide a stable framework for european financial markets. 4. what about the banks? what does all that mean for the banks? in essence, regulators and supervisors are working towards strengthening the principles of a market economy. naturally, this puts more weight on the shoulders of market participants, that is, the banks. in future, there will be no public lifeguard standing by to bail banks out when things go wrong. failure has become a real possibility and banks have to acknowledge that. they should have an interest in safeguarding their stability and strengthening their profitability. regarding the stability of banks, the comprehensive assessment provided a deep insight into the state of the european system. so let us take a closer look at the german banks that were subjected to that assessment. all in all, german banks did rather well. of the 25 german banks that were examined, there was only one “ technical ” failure, since the bank in question has already remedied its capital shortfall. over all, it could be concluded that german banks are stable enough from a capital point of view to cope with severe economic stress. but again, no bank should give in to complacency. and neither should supervisors. we should, for instance, be aware that the comprehensive assessment focused on risk - weighted capital ratios. markets and supervisors, however, also cast an eye on unweighted capital ratios. and with regard to these leverage ratios, german banks are below average compared to other euro - area countries. thus, there is ample room to catch - up and improve stability even further. nevertheless, while stability is necessary for a bank, it is not sufficient. banks have to be profitable as well. and in this regard, too, german banks need to catch up. their return on assets and their return on equity are also relatively low compared to other euro - area countries. a recent study even comes to the conclusion that only 6 %

the intention to acquire control of a bank, repealed the rules on maturity transformation and the limits on banks ’ medium and long - term lending to firms, simplified the procedures for opening new branches, issued regulations for banks ’ covered bonds to create a broad and reliable market, and launched a review of all the supervisory legislation with a view to drastically reducing the number of authorizations. public confidence remains essential for the soundness of banks. the bank of italy verifies compliance with the rules on the transparency of banking and financial transactions and services ; the extensive checks it makes at intermediaries help to improve the standard of their dealings with customers. in addition to ensuring contractual correctness, the information banks give to customers must be clear and simple. in order to strengthen the real protection of savers and firms, we plan to review all the legislation on transparency and reduce the bureaucratic formalities. we have launched a new survey on the cost of bank current accounts, among other things to ascertain the importance of structural factors such as the impact of taxation and the excessive use of cash. the recently approved european directive on retail payment services opens the market to new operators, such as large retailers and mobile phone companies ; it increases competition, reduces costs, broadens the supply of services and lays the foundations for an integrated payment system in europe. the bank of italy will support an extensive application of the directive, which it is to be hoped will soon be transposed by parliament. * * * italy has transformed its banking system, begun to put its public finances in order and started to grow again. i have already reported on the progress made by the banking system. the role we played in this regard was neutral, not detached. we indicated the objective, not the actors : to aim for growth, abandoning the parochialism of the past and accepting the challenge of the market. this was where the transformation originated, not in the plans of the authorities. it is now essential that shareholders, households and enterprises clearly discern the benefits, in the shape of stronger banks ready to offer a wider range of services at lower cost. finally, the conflicts of interest that are ever present in the land of cross - shareholdings have to be resolved. the bank will follow all of these developments closely. a modern financial system does not tolerate the mixing of politics and banking. let the separation be clear - cut, and both will be strengthened. for the public finances once again to foster growth and not hamper it, their adjustment