case of financial paper the issuer must submit to auditing ; small and medium - sized firms must have a sponsor ( bank, asset management company, investment firm ) who is required to report the issue ’ s rating. for example, in january this year ireland ’ s national pensions reserve fund announced the creation of new funds for investment in small domestic firms amounting to € 850 million. see u. albertazzi, g. eramo, l. gambacorta and c. salleo, “ securitization is not that evil after all ”, banca d ’ italia, temi di discussione, no. 741 and bis working paper, no. 341 ( 2011 ). bis central bankers ’ speeches there is considerable scope for institutional investors to expand their investments in private bonds, securitized loans and credit funds. listed bonds of non - financial companies account for a very small share of the total portfolio of open - end investment funds, and the proportion of unlisted securities is well below regulatory limits ; immediately accessible resources are estimated to amount to between €6 billion and €10 billion ; much larger amounts would be available with a liquid market for securities. moreover, large - scale investments may also be made by insurance companies, pension funds and closed - end funds. without a sufficient supply of securities of italian firms, many institutional investors could well turn to foreign markets. 3. mutual banks italy ’ s 394 mutual banks and 3 mutual - bank central credit institutions account for 10 per cent of loans to households and firms, a bigger share than the third largest italian banking group. this role of mutual banks is even more important in the case of small firms, accounting for almost 20 per cent of total lending. the mutual banks had greatly expanded their activity prior to the recession. from 1995 to 2008 their market share of lending rose by nearly 9 percentage points for small firms, 5 points for large firms and 3 points for households. as emphasized on previous occasions, 14 underlying this expansion are knowledge of the local markets, experience in assessing the creditworthiness of small borrowers, and an ability to meet customers ’ needs promptly and efficiently. mutual banks stabilized the supply of loans even during the 2008 – 09 recession : their sound capital base and stable funding enabled them to provide financial support to the small and medium - sized firms subjected to rationing by the large banks. more recently, the unfavourable economic situation and financial market tensions have altered this scenario. the mutual banks are now

to establish the new groups. the participating banks must begin to operate in harmony, under the guidance of the parent company, well before the groups have been formally established. the asset quality review will need to be thoroughly updated to take account of the necessary value adjustments and write - downs already entered in this year ’ s balance sheets. the bank of italy is committed to strengthening the other banks under its direct supervision in order to increase their efficiency and productivity, promote the supply of innovative services for households and firms, and diversify their sources of income. for their part, banks are being called on to undertake wide - ranging action, including mergers to facilitate investment, economies of scale and, where necessary, access to capital markets. a first step towards greater integration could be recourse to consortiums to provide services and the pooling of data for internal models to compute capital requirements. in line with other countries, a more decisive step would be to introduce institutional protection schemes ( ips ), which do not remove the autonomy of individual banks but give rise to mutual support agreements that can be activated in the event of capital or liquidity needs. expenses, income and structural changes in the banking industry the significant progress made in overcoming the grave difficulties of some banks and the gradual improvement in balance sheet conditions throughout the banking industry are undoubtedly positive developments. several factors, however, are altering the context in which banks operate : changes in demand for financial services, technological progress and the digital revolution, and the regulatory reforms introduced in the wake of the financial crisis. the profitability of european banks has diminished considerably over the last ten years. the global financial crisis first hit the large merchant banks, who earn much of their income on the capital market. the recession and sovereign debt crises then took their toll on the balance sheets of banks whose core business is lending. italy ’ s banking sector suffered a particularly sharp fall in profits ; the return on capital, which was about 10 per cent in the middle of the previous decade, has been virtually nil for the last five years, exceptional factors aside. at the same time, the profits of italian banks have been eroded by heavier losses on loans and a drop in income. because of corporate crises in particular, from 2008 to 2016 write - downs on loans absorbed 80 per cent of operating profit. interest income is now one third lower in relation to total assets than in the middle of the last decade ; other income has also diminished. as the economic recovery gains strength, the outlook for the banking industry