so, do the advantages outweigh the costs? i believe these are important questions. while it is not for central banks to answer them, i think that they provide a strong motivation for the central banking community ’ s interest in the dlt. let me be more specific. a key motivation has to do with the safety of market infrastructure. without adequate solutions for the dvp settlement in central bank money of the tokens traded on dlts, the latter could never achieve the level of safety that is typical of traditional securities trading and settlement systems. for instance, target2 offers efficient and secure settlement in central bank money, but it would be unable, without the development of ad hoc interfaces ( or the issuance of central bank money in the form of tokens ) to simultaneously settle the cash leg of financial transactions happening on a dlt. financial intermediaries are successfully issuing securities on dlt and settling trades in dvp mode using tokenized commercial bank money. these exciting developments offer an opportunity to test the dlt and get practical feedback about its benefits ( and disadvantages ). in my view, however, dvp in central bank money is no longer optional for market participants. few if any would trust a large market infrastructure that would the list of snags could go on. permissionless dlt systems must continuously generate enough fees for anonymous validators to ensure the integrity of the ledger in the absence of a central authority. ultimately, this creates significant inefficiencies and risks for users. for example, when the value of luna went to zero in the recent terra - luna collapse, the incentive for miners to validate transactions evaporated ( as they were remunerated in luna units ), and the blockchain stopped for several hours. a similar problem could materialize for any blockchain managing securities. see p. lee, “ has tokenization ’ s time finally come? ”, euromoney, march 03, 2023. in dlts based on proof of work, mining is highly energy - and hardware - intensive ; this has tended to concentrate mining activity, with the attendant risk of collusion and forks. dlts relying on proof of stake tend to concentrate decisions on few holders of governance tokens, reintroducing the governance problems that are typical of traditional intermediaries. banca d ’ italia is actively promoting research on the topic of ‘ smart contracts ’ including their implications on cyber - security. a memorandum of understanding

tensions experienced in recent weeks reflect banks ’ attempts to exploit regulatory arbitrage permitted by the basel 1 framework, transferring outside their balance sheets, to unregulated entities, activities that would have required substantial capital otherwise. searching for the direction to follow in addressing the issues that have emerged, we can advance the following considerations : • the basel 2 framework will certainly mitigate the problem, as the risks associated with the innovative, complex activities undertaken by banks in recent years will be easier to capture. with respect to capital requirements, for example, basel 2 improves on the treatment of mortgage exposures and introduces a capital charge on liquidity lines extended to conduits funded through asset - backed commercial paper. additional capital will be required to match operational risks in order, for example, to cover legal losses. to enhance market discipline banks will be induced to disclose information about their risk management policies and systems. this will include the risks associated with securitization exposures. as a development of the new regulatory approach, before the turmoil the basel committee had begun a review of the existing supervisory approaches to liquidity risk. • while the basel 2 framework will represent a considerable improvement on the previous discipline of capital requirements, steps need to be taken in other areas to avoid excessive risks and make banks more resilient to shocks. to improve transparency on risk exposures, particular attention must be paid to the obligation to consolidate the accounts of financial vehicles, even if not affiliated, whenever banks exercise substantial control and bear the ultimate risk. to take account of the effective risk for prudential purposes, vehicles that are largely controlled by banks should also be consolidated when capital requirements are established. in order to contain model risk, additional efforts must be directed at refining the methods used to value sf products. banks ’ liquidity management must also be improved, with reference to liabilities no less than assets, to increase our understanding of the relation between market liquidity and banks ’ funding liquidity risk. also, public authorities and market participants should thoroughly review existing incentives in the financial industry at large, to find ways to prevent the accumulation of excessive risks. an additional area of policy intervention that is becoming as important as the regulation and supervision of markets and intermediaries is financial literacy. as individuals become increasingly responsible for their retirement income and the allocation of wealth, so their financial needs are becoming increasingly complex. the financial industry is responding with a wide range of instruments, many of them complex as well. a few remarks on this point are