early to tell whether the changes on the financial markets have determined the end of “ credit cycles ”. y. altunbas, l. gambacorta and d. marques, “ securitisation and monetary policy ”, mimeo, may 2007. 4. 2 monetary policy and asset markets while the role of banks in monetary policy transmission is diminishing, other channels are gaining in importance. to the extent that financial innovation makes markets more complete and more efficient, actual and expected changes in official interest rates are readily transmitted to a wide range of financial assets. overall, the effects of policy decisions on financial markets are stronger and faster. a more immediate impact of monetary policy on a wide range of asset prices may have favourable implications, since it provides monetary authorities with a powerful instrument for affecting the economy. market expectations on future policy intentions move long - term rates and affect financing conditions, even before official interest rates are changed. the modification of asset prices affects consumption and investment decisions. if policy communication is effective, these changes may partly “ do the job ” for central banks. at the same time, unless we are suitably careful the consequences may be disruptive. policy actions that diverge from the pace expected by economic agents, which is built into long - term interest rates and other yields as well as into positions taken on the market, may upset markets, increase volatility and, in extreme cases, induce a simultaneous revision in positions, with potentially disorderly effects on liquidity and asset prices. the concern not to destabilize financial markets is one reason why many central banks have striven in recent years to reduce the uncertainty arising from policy decisions. they are paying more attention to proper communication of their objectives, strategies and, with different nuances and practices, future intentions. a trend to greater gradualism in policy action has emerged in all the main industrialized economies ( policy moves in excess of 25 basis points are now quite rare for major central banks ) partly in response to the greater uncertainty over the impact of rate changes on the financial markets. as the interplay between policy actions and market expectations gathers importance, we should also guard against the risk of what has been described by alan blinder as the “ dog chasing its tail ”. it is fundamental that we to avoid a situation in which financial markets look at the central bank and the central bank looks at financial markets, both losing sight of the underlying factors that determine inflation. in the eurosystem, we consider it

designed to reactivate market mechanisms, not to remedy the difficulties of individual banks at taxpayers ’ expense. it can also help restore an adequate flow of credit and thus support the economic recovery. bis central bankers ’ speeches the dialogue must be brought to a conclusion rapidly ; protracted uncertainty over this matter can discourage the completion of market transactions. banks must also take steps to improve the data on non - performing loans. the analyses on this subject have brought to light informational gaps that could dissuade potential buyers. data are also needed in order to improve the banks ’ own management of these assets. banks ’ corporate governance the reform of the cooperative banks is now in the implementation phase. the supervisory instructions issued by the bank of italy that complete the reform and enable the launch of the operations needed to ensure that cooperative banks with assets of above €8 billion comply with the new legislation came into effect on 27 june. once it is ascertained that this threshold has been exceeded, the bank ’ s executive bodies must, within a given deadline, draw up and transmit a plan to the bank of italy listing the initiatives to be undertaken within the 18 - month time limit envisaged by the law. in exercising its powers of authorization, the bank of italy will verify that the corporate operations proposed by the banks do not have the effect of perpetuating, under a new guise, the ownership and management arrangements that the law is meant to abrogate. another important step that must be taken is the reform of the mutual banks. while the cooperative bank reform takes account of the emergence of large, often listed, banks whose original links to their local communities had been severed, in the case of mutual banks the issue instead is to create the conditions for them to continue to fulfill their specific function, even in the current context, maintaining their mutualistic connotations and local community links. integration in banking groups is needed to favour access to capital markets in view of high credit risks, as well as to improve the quality of management, increase efficiency and keep costs down. this would not constitute a diversion from the mutual banks ’ original purposes but on the contrary would strengthen their ability to serve their members and their communities, among other things by providing a broader range of services adapted to their customers ’ needs. the completion of the reform will necessitate legislative interventions that promote forms of integration based on membership of banking groups, based on models that have been adopted in other european countries. the bank of italy is monitoring the discussion on these