at one and the same time ), so that management ’ s incentives are less closely aligned with the interests of the community where the bank was originally established. the support for the economy provided by banche popolari, especially the smaller ones, is a major strength of italy ’ s banking system. however, there are risks that cannot be ignored. an examination of the banking relationships of a sample of nearly 50, 000 firms surveyed by the company accounts data service shows that the banks that stepped up their lending most sharply in the last year did so in part by significantly increasing their exposure to financially fragile firms. the necessary provision of support to businesses must be accompanied by an objective assessment of the potential of the projects undertaken and the medium - term prospects. careful and stringent risk management is a sine qua non for credit to continue to flow to where it can safeguard valid business initiatives and contribute to the recovery of productive activity. 4. technical indicators the banche popolari ’ s technical indicators – like the main balance - sheet aggregates analyzed above – point to quite considerable diversification in terms of size and market. capital adequacy ratios show no evidence of any particular difficulty overall. the solvency ratio is in line with that of the banking system as a whole ; it is higher for the smaller banche popolari than for the larger, listed ones. profitability reflects these institutions ’ retail specialization, involving broad territorial coverage through a dense branch network. the ratio of operating costs to gross income, which can serve as a proxy for operating efficiency, was 63. 8 per cent in june 2008, about one percentage point higher than for banks incorporated as public limited companies. this indicator improves with the size of the bank : it is better for the listed than for the minor banks ( 63. 1 as against 67. 9 per cent ). roe is lower for banche popolari than for public limited banks ( 8 and 10 per cent respectively ), and again differs within the cooperative group ( 8. 1 per cent for listed and 7. 5 per cent for unlisted institutions ). many cooperative banks, like the others, recorded significantly reduced profits in the first three quarters of 2008, as a result of the financial turmoil. loan quality is now showing serious effects of the recession, as in the banking system as a whole. the non - performing portion of the cooperative banks ’ business loans rose by nearly half in 2008 to 1. 9 per cent, compared with 1. 3

of the financial system as a system, that gaps in the regulatory agenda are identified and filled, and that overlaps and inconsistencies are avoided. second, as i will illustrate further below, many financial stability policy goals, such as resolving the “ too big to fail ” problem, span a wide range of issues that require input, expertise and action from a number of standard setting bodies and national and international agencies. the board will oversee these multi - dimensional work programmes, to balance the potential solutions from individual work streams, and to offer consistent advice to political leaders on how to develop a strong policy framework. and third, the board will promote consistent implementation and follow through of agreed policies and standards. 3. developing financial stability policies a key responsibility – and a starting point for much of the fsb ’ s work – is to identify sources of vulnerability in the global financial system and how best to reduce them. there are conjunctural as well as structural components to this assessment and, as this crisis has amply demonstrated, these components interact. while we regularly review trends in global financial system to identify areas where risks may be building, our primary focus is the identification of structural weaknesses : market failures, such as the misalignment of incentives, collective action and coordination problems ; weaknesses in market infrastructure ; and information asymmetries and shortfalls. such “ fault - lines ” in the fabric of the financial system highlight the need for regulation and supervision. it is vital that the authorities work closely together to deliver common and consistent solutions to identified system - wide vulnerabilities, given the potential for arbitrage and regulatory competition and the risks of conflicts between uncoordinated national policy objectives. a collective diagnosis is the necessary foundation for a well coordinated and effective response. following the onset of the financial crisis, an urgent and immediate task of the fsb ’ s predecessor, the financial stability forum, was to undertake a thorough assessment of the main sources of the crisis, the weaknesses revealed and lessons for policy. in april 2008, the fsf produced a report committing its members to a wide range of concrete actions to strengthen financial system resilience. a further set of recommendations, focusing on ways to reduce the procyclicality of the financial system, to improve co - operation in cross - border crisis management, and to strengthen compensation frameworks, was published in april 2009. together, our 2008 and 2009 reports were major inputs into the declarations by leaders at the washington and