sector bonds, in particular bank bonds, is high, as they enjoy a more favourable tax regime than deposits. full advantage is not being taken of the portfolio diversification that professional managers can provide. banks continue to play a crucial role, both because the level of direct intermediation is still high and because the major banking groups include management companies that control almost the entire investment fund market. this market therefore contributes decisively to the size and profitability of banks, which accordingly have a strategic interest in increasing its competitiveness. management companies distribute their products almost exclusively through the networks of the group they belong to. this vertically integrated model enabled the italian investment fund industry to grow rapidly, households to rely on relationships of trust with their banks when turning to asset management services, and banks to diversify their sources of income. asset management offers italian banks considerable scope for expanding their business, increasing their profits and improving their stock market ratios. however, in a fast - changing competitive environment, this will require appropriate strategies for both products and customer relations. the reliance on a captive market and the small size of most asset managers are not conducive to innovation or economies of scale, which are crucial to competitiveness and profitability in this sector. foreign competitors are gaining ground in the italian market, especially as regards innovative products ; more than 85 per cent of the exchange traded funds listed by borsa italiana are managed by foreign groups. the independence of asset managers whether it is the result of decisions regarding their ownership or of strict corporate governance rules is essential not only for their growth but also to resolve the conflicts of interest inherent in their relationships with their parent banks. 5. financial regulation the large proportion of savings not entrusted to professional investors, the scale of households ’ investment in financial products and the growing complexity of the financial instruments available require the authorities to refine supervisory regulations and practices constantly. the law on the protection of savings recently approved by parliament strengthens some of the safeguards for investors. the division of responsibilities between the bank of italy and consob has always been based on the distinction between safeguarding the stability of intermediaries on the one hand and protecting investors and supervising markets on the other. this distinction, essential for effective action and the clear attribution of responsibilities, requires cooperation among the authorities in drawing up rules, in verifying intermediaries ’ compliance and in promoting investors ’ financial education. the bank of italy stands ready to continue this cooperation. regulation of the markets cannot eliminate risks for investors,

field for financial markets quickly re - emerge in the deliberations of the heads of state and government and finance ministers of the european union. 7. closing remarks italy continues to benefit little from the favourable developments in world trade and international finance. in 2005 gdp stagnated, exports continued to lose market share, the budget deficit widened. since the 1990s the economy has been as if bogged down. cyclical indicators and the short - and medium - term predictions of the main forecasting institutions now point to a pick - up in italian gdp, but with growth still less than the potential, which is already lower than in the other major countries. the growth gap reflects italian industry ’ s difficulty in competing. this is rooted in the lack of improvement in productivity. in other countries the revolution in production sparked by information and communications technology has produced its full effects : firms have adapted their human and organizational capital to the new technologies. italy has been slow to seize the opportunities of this revolution. the gap is widest in total factor productivity. new players are coming onto the stage, formidable in asia but also present in latin america and central and eastern europe. this has imparted an extraordinary impulse to world trade. it is a great opportunity for growth but also a major challenge, in the face of which italy has stumbled. with the end of the illusory remedy of competitive devaluations, productivity growth is the only possible way to achieve prosperity, to create a solid, sustainable foundation for wage increases, and to ensure the development of the country, for ourselves and for future generations. the structural lags of the italian economy are not the signs of inevitable decline. they are manifestations of problems that are profound and serious but that can be overcome. we need to devise lasting solutions and explain them clearly to the public. this week the european central bank raised its key rates by a quarter of a point. the time available for the adjustment of the public finances and a return to growth is running out. savings, one of the strengths of our economy and our society, are an essential ingredient for growth. it is up to the financial system, markets and intermediaries, to channel them towards the most productive uses, acting in a fully competitive environment and in compliance with the rules. this is your – and our – responsibility.