london summits on an action plan to strengthen the financial system. we have since been asked to oversee, drive forward and co - ordinate implementation of the action plan, and strengthen it where needed. the key message is straightforward : we need major changes. we need to build a system which is less leveraged, where capital and liquidity buffers are much stronger, where all institutions or infrastructure capable of posing significant risk are subject to appropriate oversight and safeguards, and where no institution is too big to fail. and we need a systematic effort to reverse the misalignments in incentives that came to characterize part of financial system. all this requires a regulatory and prudential framework which pays much more attention to system - wide interconnections and the health of the global financial network. we consequently need to focus much more on the difficult, but also crucially important, challenges of designing and implementing a macroprudential system of regulation. this will ensure that the financial system is a source of stability that supports the economy under stress, not a source of weakness that amplifies strains and causes major economic damage. in undertaking this collective diagnosis and drawing up a work programme, an important element of the fsb ’ s role has been to ensure that there is sufficient focus on key areas that cut across the responsibility of different international agencies and groupings. two good examples, high on the policy agenda, are procyclicality and compensation. there will be major corrective measures to mitigate the procyclical tendencies of the system. banks will be required to build up a capital buffer during the expansionary phases of the cycle to draw on at times of generalized difficulty. it has already been proposed to mandate a significant increase in the capital charges on trading activities and exposures to securitization instruments. the fsb ’ s proposals are being addressed within the framework for capital regulation, driven by the basel committee ; those on provisioning, accounting and valuation issues are taken forward by the accounting standard setters with input from the regulatory community ; those on margining practices in securities and otc derivatives markets are being pursued by the committee on payment and settlement systems and the committee on the global financial system. we are now entering a critical stage in the regulatory reform process : we have to take some difficult decisions. the basel committee will test those affecting the capital framework through a comprehensive impact assessment in 2010, and phase them in as financial and economic conditions improve. principles on compensation were

they are back near pre - crisis levels. by contrast, spending on construction has lagged behind for longer. between 2008 and 2014 it contracted uninterruptedly, weighing heavily on the overall investment - to - gdp ratio, which to date has hardly risen at all. yet even this sector has shown some signs of a revival starting last year. the signs are clearer in the residential sector, which has long benefited from tax incentives for the renovation of existing buildings, while the non - residential construction sector is still struggling to pick up and public investment has been on a trend decline since 2010. why has investment returned to growth, at least in machinery and equipment? the bank of italy ’ s econometric model can give us some quantitative answers. according to our estimates, 1 almost half of the growth recorded is attributable to the improvement in the credit market : the strongly expansionary monetary policy stance has recently led to a reduction in the cost of capital and fostered more relaxed supply conditions. yet the gradual improvement in demand and increased confidence on the part of firms have also contributed by one third ; if the favourable economic situation continues, then this factor ’ s contribution should increase. lastly, government policies to encourage spending on capital goods have also made a significant contribution, which we estimate at around one fifth of the total. as is well known, various tax incentive schemes for see the box ‘ the trend in investment and the cyclical recovery ’ in the bank of italy ’ s annual report for 2015, 2016. investment have been set up and implemented in recent years, especially in favour of advanced technology. the results of the bank of italy ’ s annual business survey ( to which, as always, the bank ’ s regional research network has made a vital contribution ) show that in 2016 tax benefits for investment provided considerable support, and will do so to an even greater extent in 2017. we estimate that these benefits are going to boost investment by 3. 5 percentage points overall in the period 2016 - 18. the fact that they are of limited duration is also important : part of their short - term effect is that firms bring forward their spending plans. our surveys show that in 2016 investment was higher for small and medium - sized manufacturers, which had been particularly hard hit by the recession. they also indicate that investment will expand further this year : the share of manufacturing firms that plan to increase investment in 2017 was much higher than the share of those planning to reduce it. the slowdown recorded in the early