stock of them is kept large by the slowness of recovery procedures. it should also be noted that in the last few years the proportion of impaired loans backed by guarantees has risen for italian banks. in the meetings with the international monetary fund, which is currently performing its periodic assessment of the stability of the italian financial system, we stressed the need to bear these aspects in mind when attempting to draw policy implications from international comparisons. another question that is sometimes raised is whether the loan assessments that we require banks to make are not excessively cautious and therefore likely to slow the financing of the economy. here again it is necessary to be clear. the prudence we require in the assessment of loans helps to safeguard the integrity of banks ’ capital and contributes to increasing the market ’ s confidence in them. analysts and investors want the amounts stated in balance sheets to reflect the actual quality of banks ’ assets and provide reliable indications of the risks involved. prudent provisioning policies encourage the disposal of impaired items. it also needs to be recognized that such policies are likely to be hindered by a harsh tax treatment, which should be gradually removed. in periods of market tension, the intensity of supervision cannot be relaxed until the economic recovery produces its effects on banks ’ accounts. tolerance towards situations of persistent support to borrowers with a precarious financial condition and no prospect of growth would not only risk undermining the soundness of the banks but also hinder the efficient allocation of resources to the economy. the inspections we perform make it possible to assess the situation of each intermediary on a case - by - case basis. we pay due attention to the risk of generating procyclical effects. to this end, above all we ask banks that need to strengthen their capital bases to free resources by reducing their costs, selling non - strategic assets and retaining earnings in the business. beyond the short term the prudent assessment of assets is beneficial to the financing of customers, especially if coupled with action by the banks to increase their ability to resist and bis central bankers ’ speeches react to external shocks. efficient production processes and attention to strategic sectors contribute to the growth of credit business and in this way to the support of the economy. in recent years italian banks have increased their capital resources considerably, especially core tier 1 capital. since 2007 the core tier 1 ratio of the banking system has risen from 7. 1 to 10. 4 per cent. for the five largest banking groups, which have raised €17 billion on the

market. however, it must be clear that no reasonably conceivable measure can cancel at a stroke the stock of bad debt. rather, the banking system must tackle it with determination, in a medium - term horizon. no less important is the need to continue working on legislative and organizational procedures to improve and streamline the credit recovery, by assessing the effects of the public measures already undertaken and, where necessary, implementing new ones. italian banks are well capitalized, thanks also to the prudent and swift action taken by the bank of italy and, for over a year now, to european supervision, in which we are fully engaged. the stock of non - performing loans is amply covered by provisions and guarantees. the current economic situation is favouring a recovery in profitability, for banks and non - financial firms alike. now is the time to address and decisively reduce structural costs, and to lay the foundation for robust growth, to the benefit of banks themselves and of the economic system as a whole. confidence is essential to the stability of the banking system. at a time in which the short - term economic outlook remains favourable, but uncertainty and market volatility appear to be on the rise, the best way to strengthen stability is to aim to be unequivocal in both intent and deed. it is an objective wholly within our reach, provided all actors play their part : banks, supervisory authorities, government. the bank of italy ’ s commitment can be counted on. bis central bankers ’ speeches