has turned out to be rather complex in recent years. profitability. despite recent improvements, the profitability of european banks remains weak : the average return on equity ( around 6 per cent for the major intermediaries ) is barely in line with the cost of equity in the euro area ( and is somewhat lower in germany and in italy ). the reasons are not only those related to the weak economic outlook. indeed, in europe the role of banks in financing the economy has been diminishing for over a decade, making it difficult to increase revenues by expanding credit volumes. the transition towards a more market - based financial system is necessary in a modern economy. in this respect, in the euro area non - financial companies continue to be excessively dependent on bank credit. the ratio of bank loans to total financial debts is 36 per cent in the euro area ( 56 per cent in italy ), against 33 and 27 per cent in the united states and the united kingdom. by contrast, the share of bonds is still about 10 percentage points lower than in the united kingdom and 30 points less than in the united states. the market capitalisation of listed non - financial companies is also insufficient : at end - 2017 it stood at 25 per cent of gdp in italy and 60 per cent in germany, against around 125 per cent in the united states. in order to raise profitability banks must contain costs, diversify the sources of income, and find ways to significantly raise efficiency levels. the changes that are currently taking place in the financial sector pose novel challenges, but also provide fresh opportunities for well - managed financial intermediaries, among which banks can certainly be included. fintech and big tech companies are offering new financial services and exploiting innovative technologies and massive amounts of data. banks are responding by expanding the range of products provided through digital channels. it is a process that is bound to continue, as more intensive use of new technologies is necessary to compete effectively in the market and achieve adequate levels of profitability. risks on the assets side. we can draw a number of lessons from italy ’ s double - dip recession and the consequences for its banking system of both the global financial crisis and the sovereign debt crisis. the first lesson concerns the treatment of impaired assets, an area where italy ’ s experience has been especially important. following the large - scale disposals of bad loans completed in recent years, in italy more than half of banks ’ total npls currently consist in exposures to firms whose difficulties may prove

##nt fiscal policies but, most importantly, structural reforms aimed at regaining sustained gdp growth. the latter, in turn, would help make loans to households and firms more attractive, and reduce the share of government debt in banks ’ balance sheets. while there has been a heated debate about npls and sovereign bond holdings, much less attention has been paid on the risks deriving from the stock of illiquid and opaque assets in banks ’ balance sheets, including the instruments classified as level 2 and level 3 assets in the fair value hierarchy. these risks are not easy to measure, but available estimates put them broadly on a par with those associated with npls. the single supervisory mechanism has recently adopted some initiatives aimed at defining the most appropriate interventions to take adequate account of these risks. these efforts must be intensified. the increase in the cost of funding is the third area that should not be neglected. in the coming years all large banks will have to raise a significant amount of “ bail - inable ” liabilities in order to fulfil the new global and european regulation on total loss - absorbing capacity ( tlac ) and the minimum requirement for own funds and eligible liabilities ( mrel ). raising funds may indeed pose a difficult challenge. regulators and supervisors have to strike the right balance between the need to set appropriate criteria in order to stop taxpayers bearing the cost of future banking crises, on the one hand, and, on the other hand, the need to be sufficiently rigorous, with the risk, in persistently adverse market conditions for many intermediaries, of ultimately increasing the probability of future banking crises. the principle of bailing - in creditors makes sense but its concrete application requires care, especially in the current circumstances. the management of banking crises. italy ’ s experience has revealed serious drawbacks in the new european regulation governing small - and medium - size intermediaries which, under the new rules, cannot access the facilities embedded in the so - called “ resolution ” procedure. for these banks – the vast majority of the roughly 3, 000 euro - area institutions – a piecemeal liquidation is the only option currently available in the absence of interested buyers. but liquidation threatens the continuity of the supply of financial services, may imply large losses for both creditors and debtors and, due to potential contagion effects, may pose serious risks to overall financial stability. more must be done in this field, and from this perspective the experience of the united states is especially important. the us federal deposit