small traditional banks, equal to 72 per cent on average, is higher than that of both the large significant groups ( 66 per cent ) and of the specialized intermediaries ( 64 per cent ). for all intermediaries, the process of restructuring and adapting to the new economic, regulatory and market landscapes, as well as to technological advances, must proceed with determination. stronger balance sheets and greater efficiency can be achieved if the industry is reshaped in various ways, in terms of size, ownership structures and business models. as i have often pointed out, initiatives to expand the scale of operations of small banks such as mergers or greater integration of business areas across banks can prove beneficial to the extent that they reduce cost ratios, increase and diversify earnings, and enhance banks ’ ability to compete on the market. the reform of the mutual banks ( bccs ) was designed to achieve the necessary efficiency gains and economies of scale to meet the challenges associated with the transformation of the banking sector, whilst preserving these banks ’ original mutualistic spirit. the establishment of two new mutual banking groups brings the number of groups now operating in italy to 54, comprising 310 banks, while there are 100 stand - alone banks. at the end of 2008, there were 81 groups and 499 stand - alone banks. the two new groups, which this year will be subject to the ecb ’ s comprehensive assessment, must take swift action to cut costs and rationalize their distribution network by tackling the cases of individual bccs in difficulty. the financial conditions of the mutual banking groups, their operating model, organizational arrangements and governance must ensure their long - term sustainability. the single supervisory mechanism does not expect these banks to achieve the same profitability as the other intermediaries, but it must be sufficient to maintain adequate capital levels, which are indispensable to continue carrying out their work of funding the economy effectively. households ’ financial assets amount to around €4. 4 trillion, two and a half times gdp, a considerable sum by comparison with the countries of mainland europe, though still below that recorded in the united kingdom and the united states. around one third of household wealth is held in cash and deposits, one third in managed assets, and one third is invested directly in shares and bonds, both public and private, and in other assets. the share of cash and deposits, which had declined to 23 per cent in 2000, has gradually increased, reflecting the fall in market rates and the uncertain economic outlook. in the

loss resulting from inadequate or failed internal processes, people and systems or from external events ” risk. this definition includes legal risk, but excludes strategic and reputational risk. three approaches underlie measurement of capital against operational risk : ( i ) basic indicator approach ( bia ) – capital for operational risk should be equal to the average over the previous three years of a fixed percentage ( denoted alpha = 15 % ) of positive annual gross income, ( ii ) standardized approach capital charge for each business line is calculated by multiplying gross income by a factor ( denoted beta ) assigned to that business line. beta ( ranging between 12 - 18 % ) serves as a proxy for the industry - wide relationship between the operational risk loss experience for a given business line and the aggregate level of gross income for that business line ; and ( iii ) advanced measurement approach - the regulatory capital requirement will equal the risk measure generated by the bank ’ s internal operational risk measurement system using the quantitative and qualitative criteria for the ama. overall the approaches for operational risk assessment are not as nuanced as for credit risk, however the ama approach does allow for more fine tuning. once again the banks with better risk assessment would opt for the advance approaches. market discipline pillar underscores need for transparency and disclosure of data and technicalities. the evaluation of banks ’ risks and its systems and capital adequacy by the market will help ensure integrity and validation of other pillars. for this pillar to work, it needs to be supported by proper accounting rules and more elaborate disclosure of bank ’ s strategies and approaches adopted, risk profile and capital strategy through economic and credit cycle, information of the stress tests, and pd / lgd data. fourth, within the pillars, the accord offers a range of options and incentivizes banks to move from vanilla sa which assigns high risk weights and capital standards to adopting irb and within it further having the option to choose either the foundation versus advanced irb. these options have clear trade offs but most importantly, irb offers greater capital relief relative to sa. nevertheless, irb systems will only be feasible if they are supported by databases and history on credit losses, rating models and risk management systems etc. and their soundness and integrity has been validated by supervisors. banks operating in less developed countries, having limited in - house expertise, and small to medium size are in general opting for sa. the advantage of sa is its relative ease of implementation by even small and