these two groups. fully reaping the benefits of the reforms of this sector will largely depend on the effectiveness of the interaction between the parent banks and the individual bccs in raising efficiency and profitability, harnessing economies of scope and improving credit management processes, including on the basis of the single supervisory mechanism ’ s comprehensive assessment. the necessary streamlining measures will have to be carried out promptly, particularly in relation to the profitability of the branch networks and their size. the capacity of the bccs to continue to serve their territories of reference requires risk management and control systems that converge rapidly towards high standards, mostly to prevent the emergence of improper business relationships or conflicts of interest. the parent companies must act decisively when exercising their powers of intervention under the new regulatory framework and when tackling the problems of bccs with structural weaknesses. full compliance with the rules on transparency and adequate customer protection are necessary conditions to foster trust in banks and preserve their reputation ; such conditions contribute to financial stability. the bank of italy is committed to strengthening regulatory defences ; supervisory action is aimed at both individual banks and at particular problem areas. the work of the banking and financial ombudsman strengthens individual protection, but a decisively proactive approach on the part of the banks is needed, turning organizational measures aimed at ensuring compliance with rules and provisions into an effective strategic choice. the significance of the risk posed by the financial sector ’ s possible involvement in criminal activity in connection with money laundering is confirmed by recent events at some major european banks. targeted initiatives have been launched to strengthen oversight in the individual eu member states, to set up mechanisms for cooperation among national authorities, and to integrate money laundering risk assessments into prudential profiles. it will be possible to assess the effectiveness of these measures in the near future. in italy, our supervisory activity makes a significant contribution to ensuring that banks are not vulnerable to criminal infiltration ; one of our strengths is our proximity to and close cooperation with the financial intelligence unit. in this area too, it is essential that banks remain highly vigilant with respect to the monitoring of risks. over the years, cooperation with the judicial authorities has been intense : in the three years 2016 - 18, the bank of italy awarded more than 350 technical consultancy contracts, answered almost 700 requests for information, and issued more than 280 communications. support for the public prosecutor offices most heavily engaged in combatting financial crime has been stepped up. one tangible symbol of this is the memorandum of understanding that will soon be

the stock of dedicated liabilities has been fully established. precautionary recapitalization should be more readily available to address any market failures that restrict the ability of solvent banks to self - finance and to head off the risk of contagion. regulatory constraints that discourage investors from participating in bank recoveries should be removed ; these include, for example, envisaging forms of protection for the financial contributions they provide and strengthening the early intervention tools available to supervisory authorities, including special administration. the resolution procedure established at european level is only applicable to a very limited number of large banks ; in the event of a crisis, all the others would be subject to liquidation in accordance with national laws, with no guarantee of this taking place in an orderly manner in a way that avoids any impact on systemic stability. there is an urgent need for european measures establishing a liquidation framework that will not lead to business discontinuity, fire sales of assets, and negative consequences for unprotected depositors, customers and the economy as a whole. one reference model is that of the us federal deposit insurance corporation ( fdic ), under which deposit guarantee systems intervene to facilitate the en bloc disposal of the assets and liabilities of the bank being liquidated ( in an institutional framework in which the deposit protection limit is higher than that in europe and the fdic is not a super senior creditor ). more generally, the relationship between the regulatory framework on banking crises and that on state aid must be reviewed. in addition to eliminating the overlapping of jurisdictions and to clarifying uncertainties as to application, there is a need for discussion and reconsideration of the principle whereby the protection of competition, which underpins the rules on state aid, always takes precedence over arguments for protecting financial stability. appropriate revision of the european bank crisis management framework could help solve the problem of having failed to provide for an adequate transition phase which the new system would have required. such a revision would make it possible to take better account of the fact that banks are, by their very nature, exposed to the risks of contagion, unlike, as a rule, companies that operate in other economic sectors. legislative action on the part of the new european commission to revise the brrd could provide an opportunity to rethink the current rules in order to make the european regulatory framework more flexible and more at one with the nature of banking. in the european union all banks are subject to many regulatory standards which, in reality, were