need to be adapted, an objective shared by all the central banks of the eurosystem. the bank of italy is developing techniques for the analysis of a set of monetary indicators that includes all the components of money and credit. the transformation of the banking system in the year since your association ’ s last annual meeting, three major bank mergers, two of them involving cooperative banks, have been concluded with approval by shareholder meetings. a fourth, passed by the boards of the banks involved, awaits shareholder approval. the italian banking system has become more robust in terms of the size of institutions. today the two largest groups both have a significant presence abroad ; the conditions exist for competing on a european scale. the other mergers have created banks that are among the largest in italy. the consolidation of banks is just the starting point. reorganization can only be said to have been successfully carried through when the gains in efficiency envisaged by the business plans are achieved. the market expects savings from the unification of technological platforms, the integration of distribution channels, the increase in labour productivity. having a greater number of national - scale banks will increase competition. in order for increased size to engender greater competitiveness, integration synergies must be exploited in full. past experience shows how complicated it is to integrate different organizations, technologies, networks and corporate cultures. there is a serious risk of heel - dragging and slowness to adapt. a high degree of unity on the part of management and the greatest possible reserve in external communication are of the essence. there is no time to lose. the quality of corporate governance is crucial to the success of integration. choices must be guided by clear objectives and a rational division of responsibilities. the bank of italy is active, attentive. we shall continue to examine the solutions adopted and the way corporate bodies operate, ensuring their proper functioning for purposes of sound and prudent management and intervening whenever necessary. specific rules on the governance of banks will be issued. it is essential that the new groups organize their system of internal controls as a matter of urgency. the complexity of integration and the rapid expansion of innovative products heighten operational, legal and reputational risks. clear accountability and the ability of top management to keep control of the key processes are prerequisites for stability even more than efficiency. all the banks involved in the mergers had developed advanced methods of risk measurement to be submitted for supervisory approval as an instrument for calculating capital requirements. in some cases the project will have to be revised to

- pronged approach. first to reduce, but not eliminate, the possibility of failure by making banks resilient not only to known, but also to unknown risks – the events in the tail of the distribution. second, in a world in which banks can still fail, to give the authorities real, practical options for resolving failures that neither trigger widespread economic disruption nor require huge injections of public funds. and, by making investors in banks ultimately responsible for losses, as is the case for other industries, introducing a market discipline on risk taking that will further reduce the likelihood of failure in the first place. reducing likelihood of failure i believe regulation can be effective in reducing the probability of failure. we have in basel 3 a fundamentally reformed international risk weighted capital standard and, in the liquidity coverage ratio ( lcr ), the first international standard on liquidity. the imposition of quantified capital add - ons for systemically important banks has been agreed. this risk weighted capital and liquidity regime has largely been legislated in the key jurisdictions. and, to complement these revised minimum standards, countries around the world are embedding a regular stress testing process as a key part of micro - prudential and macro - prudential supervision. banks are now making the transition to the new, higher standards. the amount of capital and liquidity in the system has already been transformed. globally there is now some $ 500bn more equity capital in the banking system than the level before the crisis. the major uk banks hold £150bn more equity and their leverage has broadly halved. holdings of liquid assets have trebled. bis central bankers ’ speeches however, two crucial elements of the capital and liquidity regime are still at the design and agreement stage. the first is an international standard on leverage. though the risk - weighted capital framework provides a system that it is more sensitive to risk, it is reliant on those risk - weights being correctly calculated and, therefore, vulnerable to so - called model risk. the riskweighted approach will fail if the risk - weights are wrongly calculated, either individually or, collectively. and the evidence of the crisis is that this risk can become more pronounced in boom times when asset prices are rising and the pressure to expand balance sheets with cheap funding is greatest. the result is dangerous concentrations in what appear to be lowrisk assets. it is telling that if a minimum leverage standard been in place prior to the crisis, it would have bound more