pierluigi ciocca : supervision : one or more institutions? remarks by mr pierluigi ciocca, deputy director general of the bank of italy, to the conference on “ the new structures of financial markets : how should supervision be organized? ” held in bologna, 4 may 2001. * * * introduction the question of the allocation of responsibilities in banking and financial supervision is not a purely economic question, nor can it be solved merely on the basis of economic theories. until quite recently milton friedman was the only great economist to have addressed the issue, and even then as part of the broader problem of money and its management. many other aspects are involved, however, including : • the “ legal experience ” of a country, and hence the constitutional and institutional framework within which the question is set ; • how supervision has been and is performed, in terms of the resources, reputations and independence of the institutions concerned ; • the opinion of the markets in the light of their changeable “ conventions ”. the foregoing considerations suggest that the question should be approached, if not pragmatically, at least with prudent humility. the subject does not offer academic recipes suited to every context. one may nonetheless have opinions, based on arguments that have been worked out to a greater or lesser extent. i shall set out my own here, in the most generalized form i can achieve. the international picture these considerations regarding method are matched by an empirical observation. in recent times there has been no clear tendency for any one solution to predominate. basically, there are three alternatives : extreme centralization ( rare ), extreme decentralization ( less rare ) and intermediate solutions ( the most common ). the united states has remained faithful to a division of responsibilities in which the types of body entrusted with supervision are highly diversified, with 6 for banking supervision1 ( with 357 local offices and around 15, 000 employees ) and another 6 for financial supervision2 ( covering markets, insurance companies and pension funds with 137 local offices and some 8, 000 employees ). in addition, it is necessary to consider the self - regulatory bodies of the 9 most important financial markets. the overlapping of powers is accepted, desired, in view of the “ dialectics ”, the “ competition ”, it ensures between the various institutions and because it avoids monopoly. the number of persons engaged in supervision is huge. in the banking field it is about fifteen times the figure for the bank of italy ( about 1

be technologically adequate and comfortable. 19. however, the obstacles to a better education are not only related to the supply side. demand for skilled workers has proved to be weak as well. the ratio between the earnings of workers with a tertiary education with respect to those with upper secondary education is lower in italy with respect to the oecd ( or the eu ) average ( slide 10 ). this is a paradoxical result, which we highlighted many years ago : a lower endowment of human capital, like in our country, should in fact determine a higher return, as this production factor is in shorter supply ( slide 11 ). 20. in part, the paradox could be explained by the specialisation of italian firms in traditional sectors and by the predominant role of small firms, for which the demand of highly educated workers is typically weaker. the relatively low earnings of these workers, however, could also be the result of a vicious circle between demand and supply of human capital, triggered by the strategy of firms. indeed, they may have reacted to the perception of a generally low quality of education with a generalised offer of low wages, which, in turn, would not have been sufficient to foster higher investment in education by families. in addition, the difficulties in finding suitable skills in the labour market could have resulted in firms consolidating their low propensity to invest in new technologies, thereby containing the need for skilled labour. 21. low returns and low demand for skilled workers are among the reasons that encourage a high number of italians, especially highly educated young people, to migrate abroad. between 2009 and 2018, 816, 000 italians moved their residence in a foreign country ( against 333, 000 who repatriated to italy ) ; in 2018 out of the 157, 000 italians who emigrated, about 30 per cent had tertiary education while 25 per cent had upper secondary education. 22. a large collective effort is required to reverse this vicious circle. albeit low in the international comparison, highly educated workers still preserve a sizeable earning advantage with respect to less educated workers ; moreover, they show a lower risk of remaining unemployed and generally have more stable careers. families and students should therefore understand the importance of investing in knowledge, not only at school but also throughout their whole lives. additional investment by the state should aim at modernising the infrastructures as well as at improving the training and motivation of teachers. private firms also have a key role to play. their reaction to the huge transformation induced by technological progress