fully reactivating the financing of households and firms. for some time we have been proposing initiatives along these lines, with scope for public - sector participation. we are working together with the government to design them, in compliance with the european rules on state aid. a discussion that we hope will be rapid and constructive is now under way with the european authorities. in 2014 the large increase in italian banks ’ capital ratios, with the average core capital ratio rising to 11. 8 per cent from 10. 5 per cent the year before, was achieved mainly with the capital increases carried out, at our prompting, in the first half of the year ; the contribution of self - financing was negative for the system as a whole. in order to recoup profitability, banks can curb costs further and expand their sources of income. more than a few banks, especially medium - sized ones, are evaluating mergers and acquisitions, including in response to recent regulatory innovations. there are sizeable potential bis central bankers ’ speeches benefits of these operations but they cannot be taken for granted ; they require vigorous action at the organizational level, in rationalizing distribution systems, risk management and technology uptake. the revision of international prudential standards aims to protect the integrity of the banking system as a fundamental infrastructure for the functioning of a modern market economy. the new rules on capital, leverage and liquidity and the establishment of crisis resolution mechanisms will make the system more stable and lessen the possible effects of bank crises on the economy and the public finances. at the same time, they will result in a reduction of banks ’ capacity to take risks and a structural reduction in the return on capital invested in them. the granting of loans will become more selective ; the development, within a welldefined regulatory framework, of alternative forms of financing necessary to avert a shortage of resources for the real economy will have to be stimulated. looking ahead, the shift of a part of the intermediation process from banks to markets will benefit both firms and households, allowing the former to expand their sources of financing and the latter to diversify their savings to a greater extent. banks will continue to play a central role in the financial system if they prove able to accompany this evolution by expanding their activity in the field of services and assisting firms in direct capital raising. a trend of this kind is under way in many countries, but here in italy the transition will not be easy. the underdevelopment of the italian capital market reflects the characteristics of the

to the increased complexity of the corporate structures of mnes, as i just mentioned. chart 7 evolution of external assets ( percentages of world gdp ) sources : external wealth of nations database ( lane and milesi - ferretti ) and ecb staff calculations. notes : aggregates for advanced economies, financial centres and emerging and developing countries are defined as in lane, p. r. and milesi - ferretti, g. m. ( 2018 ), “ the external wealth of nations revisited : international financial integration in the aftermath of the global financial crisis ”, imf economic review, vol. 66, no 1, international monetary fund, pp. 189 - 222. due to these trends, interpreting headline fdi data has become increasingly difficult, including for the aggregate euro area. notably, there is a high presence of spes in a number of euro area countries. in these economies, spes account for sizeable shares of cross - border financial transactions and positions, not only in terms of fdi but also in terms of portfolio investment and other investment. spes located in euro area financial centres typically hold equities, manage debt issuance, and allocate funding across parent and subsidiaries. statistics on spes are, however, not yet sufficiently developed : these are only available for a limited set of countries, largely focus on fdi and do not follow a harmonised international definition. large changes to the international balance sheet and financial flows of an economy may also arise from redomiciliations of headquarters. common patterns associated with moving the headquarters of an mne to a financial centre economy are increases in net fdi assets of the financial centre, while portfolio equity liabilities increase if the shareholders remain unchanged. in relation to fdi of the euro area, it is notable that, in recent years, gross fdi transactions of euro area financial centres have been so large that these have driven aggregate euro area developments ( chart 8 ). another defining feature of fdi is the strong positive correlation between gross assets and liabilities, especially in financial centres, which hints at the importance of the pass - through of financial flows for the evolution of fdi data. chart 8 euro area foreign direct investment assets and liabilities transactions ( percentages of euro area gdp ) sources : ecb and eurostat. notes : financial centres refer to belgium, cyprus, ireland, luxembourg, malta, netherlands. inverted values for liabilities. four - quarter moving sums. the latest observation is for the