for the future, the availability of collateral must be ensured by extending the range of eligible credits, including to new categories ; special care must be taken to ensure that the methods of granting the loans comply with the requirements for eurosystem refinancing. the amount of collateral must also be sufficient to withstand a possible depreciation of the eligible assets caused by a sovereign downgrade. in any event, recourse to central bank financing cannot be the only answer ; efforts to regain access to the markets must continue. the banks ’ exposure to italian government securities has increased considerably since the beginning of last year. contributory factors have been the sharp drop in the returns on ( riskadjusted ) investment and the relatively high yields on government securities, set against the need to temporarily invest the liquid assets obtained from the two three - year eurosystem refinancing operations. the recovery of the economy and a return to normal conditions on the credit market will allow banks to adopt asset allocation policies that enable them to provide greater lending support to households and businesses. renewed confidence on the part of domestic and foreign investors, along with balanced public accounts and pro - growth reforms, will pave the way, without tensions developing on the market for government securities. lending continues to perform poorly as a result of the unfavourable economic situation, which is dampening demand and conditioning supply because of the adverse selection risks stemming from the deterioration in borrowers ’ creditworthiness. in the second quarter of this year, the ratio of the flow of new bad debts to outstanding loans, on an annual basis, reached 2. 9 per cent ; the increase affected only businesses. in june this year, impaired loans ( which include not only bad debts, but also non - performing, restructured and past - due loans ) bis central bankers ’ speeches amounted to €300 billion gross. net of the value adjustments already made, this figure drops to around €190 billion, of which just over €70 billion are in bad debts, now amply covered at system - wide level by collateral and personal guarantees. gross impaired loans represent 14. 7 per cent of total lending, falling to 9. 6 per cent after value adjustments. in the first half of the year, losses on loans absorbed three quarters of operating income. the banking system ’ s difficulties are unlikely to be overcome soon. there is still pressure to reduce the size of banks ’ balance sheets. however, these developments may provide the right incentives to italian firms

ignazio visco : italian banks and single european supervision speech by mr ignazio visco, governor of the bank of italy, at the presentation of the rosselli foundation ’ s 18th report on the italian financial system, rome, 7 october 2013. * * * six years of financial crisis, first global and then of sovereign debts in the euro area, and two recessions have dealt a severe blow to the euro area and italian economies. in 2012, gdp in the euro area was still 1. 3 per cent less than in 2007. in italy, where the recession has been more protracted and deeper than in the bulk of the other member countries, it was almost 7 per cent lower. in the first half of 2013 italy ’ s output continued to decline, albeit at a slower pace, thanks above all to the stimulus provided by exports. the latest indicators point to a gradual recovery, but much uncertainty remains. any residual doubts must be dispelled as regards our ability to continue down the arduous path of reform begun in the last two years, to return to stable growth, and to guarantee balanced public accounts. the widening of yield spreads between government bonds in the euro area, the most obvious sign of the sovereign debt crisis, reflects two factors : one national and one european. these are, respectively, the weaknesses of countries ’ economies and public finances ( sustainability risk ) and the incompleteness of the european construction and the attendant fears of a break - up of the monetary union ( redenomination risk ). the tensions have been tackled on these two fronts. on the one hand, countries in difficulty have pledged to adopt prudent budgetary policies and structural reforms to support competitiveness. on the other, a far - reaching reform of eu economic governance has been undertaken which, while taking shape in emergency conditions along lines that were not always clear and consistent, has nevertheless made significant progress. the strengthening of the budgetary rules, above all as regards prevention, and the extension of multilateral supervision to macroeconomic imbalances have accompanied the establishment of mechanisms for managing sovereign debt crises and paved the way for launching the banking union, resuming discussions on the budgetary union and, in the future, planning a political one. the exceptional measures adopted by the governing council of the ecb prevented this strategy, whose implementation will necessarily take a long time, from being compromised by the malfunctions and distortions which in the meantime have continued to affect financial and credit markets,