current situation. there are three channels where this is particularly relevant. first, one cause of financial fragmentation is the high public debt levels in some euro area countries, which, as domestic banks are heavily exposed to their own governments, harms banks ’ asset quality. in italy, for instance, 65 % of bonds were held domestically in early 2012, and in spain 70 %. clearly, governments have a central role in dealing with this problem by ensuring that their debt is safe and sustainable. this requires credible fiscal consolidation. bis central bankers ’ speeches second, another cause of fragmentation is low growth, which deters banks from taking risk, especially lending to smes. interest rate spreads on sme loans compared with those for large non - financial companies have widened by an average of 40 basis points since 2010. a key part of the solution here has to be structural reforms that improve the medium - term growth outlook and hence support risk appetite. only governments can introduce them. third, fragmentation is also caused by weak bank balance sheets. lack of capital, weak profitability or rising non - performing loans lead to lower credit provision or higher interest rates being charged on new loans to offset losses elsewhere. but it is governments that have to deal with this problem through recapitalisation and restructuring. in other words, without actions from governments, we will not be able to reintegrate financial markets. fortunately, positive progress is being made. the commission projects the euro area fiscal deficit to fall below 3 % of gdp this year – less than half the peak reached in 2009. under pressure from supervisors, euro area large and complex banking groups have continued to improve their capital positions, with the median core tier 1 ratio reaching 11. 1 % in the first quarter of 2013, up from 9. 6 % at the end of 2011. but there is still a long way to go before the “ singleness ” of the euro area financial market is restored. this means that there is no room for complacency for governments. most of all, they should not expect the ecb to substitute for actions that they must take themselves. 2. dealing with financial fragmentation : the role of the ecb what is then the role of the ecb in addressing financial fragmentation? the ecb necessarily operates within certain constraints. we are the european central bank, and so our focus is the euro area as a whole, not the concerns of any particular country. and we can only address issues that fall within our mandate to maintain price stability

is part of our supervisory agenda on climate. as you know, c & e risks have been one of our supervisory priorities for some years now and we have started treating them just like any other prudential risk. in this context, we have been rolling out a series of corresponding supervisory activities. in 2020 we published our guide on climate - related and environmental risks, which outlined our supervisory expectations relating to the management and disclosure of c & e risks. in 2021 we published a self - assessment benchmarking report. and in 2022 we launched the climate risk stress test and a thematic review of how banks incorporate c & e risks into their processes, a fully - fledged supervisory exercise, involving teams responsible for the day - to - day supervision of banks. at the same time, we are gradually integrating c & e risks into our regular supervisory methodology, and how banks manage these risks will ultimately impact their pillar 2 capital requirements. the ecb ’ s supervisory actions on climate are part of broader international efforts to advance the 1 / 4 bis central bankers'speeches supervision and regulation of c & e risks. at global level, the basel committee on banking supervision recently concluded a public consultation on draft supervisory principles for the prudential treatment of climate - related risks, and the input they received is now being reviewed with the aim of finalising those supervisory principles. this is part of a broader workplan of the committee to evaluate how to consider climate - related financial risks in all pillars of the basel framework. supervision, regulation and – the topic of the ecb report that is published this morning – disclosures. the importance of transparent disclosures there is growing international awareness of the great value of transparent disclosures. disclosures that are clear and easy to understand tend to benefit any company, banks included. generally, companies have strong incentives to publish frank and meaningful disclosures because transparency is usually rewarded by investors ; it helps reduce uncertainty and allows all interested parties to feel they are making safe investments based on trustworthy data. this is particularly true for climate - related and environmental risks. as the materiality of physical and transition risks increases by the day, investors are on the lookout for those companies that proactively take these risks into account in their daily operations and across all their activities. one of the essential functions of financial markets is to price risk and thus support informed and efficient capital allocation decisions. the accurate and timely disclosure of current and past operating and financial results is central to this function. to make it concrete