the strengthening of the economic recovery, could be managed better. proper coordination of the banks involved is essential, as is the intervention of corporate restructuring specialists. another fundamental question that banks cannot ignore concerns the need to keep costs down, stemming not only from the prolonged period of low inflation and low interest rates, which have compressed net interest income, but also from the evolution of the financial system that obliges banks to increase operational efficiency, especially those which, as is the case in italy, are focused on traditional intermediation. technological developments call for changes to banks ’ branch networks, which are still too numerous, and to the cost, size and composition of staffing. to facilitate the implementation of these measures, limiting the economic and social costs, traditional unemployment benefits could be complemented by the industry ’ s solidarity funds. the strength and nature of the measures aimed at recouping efficiency must be tailored to each intermediary ’ s needs. greater efficiency must partly be achieved through recent and upcoming reforms of corporate governance. the conversion of the cooperative or popolari bis central bankers ’ speeches banks into joint stock companies, in addition to encouraging more effective governance structures, will enable consolidation dictated not by the reform law or by the supervisory authorities but rather by market forces. this process could involve the revamping of a small number of intermediaries, which we have been monitoring for some time, now also under european supervision. mutual banks, a highly fragmented sector, are facing strong competitive pressures and have been severely affected by italy ’ s prolonged economic downturn. the need for greater consolidation, something we have long called for, has become more pressing. the reform being finalized, while preserving the mutualistic nature of these banks, will strengthen systemic resilience and improve corporate governance. * * * italy is emerging from a recession of exceptional duration and intensity, eclipsing the depression of the 1930s. the crisis has put severe strain on firms and households, and has caused a spike in bankruptcies and unemployment. its impact on the banking system, which is rooted in the real economy, has been violent. though shaken, it has endured. now that the indicators point to a more favourable economic outlook, banks must put themselves in a position to effectively counter future risks. europe now has a common regulatory framework for bank crisis management. this provides for a vast array of instruments, some borrowed from italy, others new to us. the most radical innovation is the obligation for holders of capital and debt instruments issued by

wiped out for business loans and is less than 0. 3 percentage points for new home loans. however, substantial differences remain between firms that are vulnerable and the – generally larger, mostly exporting – firms in sound financial shape. in november, bank credit expanded by 4. 0 per cent on an annual basis in the manufacturing sector, was barely positive in the service sector – partly owing to the contraction in lending to firms that provide real estate services – and remained negative for the construction sector. while loans to businesses with 20 or more workers rose, those to smaller firms continued to decline. the difference in borrowing costs for loan amounts above and below €1 million is 1. 5 percentage points, 0. 4 points below the peak recorded during the crisis ; at the start of 2008 it was 0. 7 points. as we reported in our economic bulletin, italy ’ s output could increase by around 1. 5 per cent in 2016 and in 2017. this scenario assumes that domestic demand, and especially investment, will continue to strengthen. the uncertainty in the international arena and its impact, at times chaotic and violent, on the financial markets pose evident risks. bis central bankers ’ speeches in recent weeks the stock markets have seen brusque movements, with bank stocks being especially volatile, particularly those of certain italian banks. in addition to uncertainties regarding the international situation, the volatility in italian bank stock prices reflects the doubts and concerns that have arisen concerning asset quality, in part related to the alarmist interpretation of a simple request for information by the ecb. tensions of this magnitude are not justified by the underlying conditions of italian banks. as the president of the ecb also recently stressed, non - performing loans in banks ’ balance sheets were examined as part of the comprehensive assessment performed in 2014, the necessary provisions were made, and there will be no new requests to increase them or to strengthen banks ’ capital. the climate surrounding the resolution of four banks that had been placed under special administration has also contributed to the volatility. 2. the resolution plan for four banks on 22 november of last year the italian government and the bank of italy applied the new rules approved by the italian parliament following its transposition of the bank recovery and resolution directive ( brrd ) to resolve the crisis at banca delle marche, banca popolare dell ’ etruria e del lazio, cassa di risparmio di ferrara and cassa di risparmio di chieti. together they held