The financial system is a complex infrastructure that allows households, firms, general government entities and other economic agents to make payments, transfer resources and manage risks. It is fragile, subject to continual strains arising from the evolution of the economy, technological innovation and the introduction of new financial instruments. Ensuring the proper functioning of this infrastructure is the task of the authorities responsible for financial stability.
The law assigns the Bank of Italy responsibility for safeguarding the stability of the national financial system. The Bank of Italy performs this task both through the exercise of microprudential supervision of banks, in partnership with the ECB within the Single Supervisory Mechanism, of other financial intermediaries and of some markets, and by implementing macroprudential policies oriented to the system as a whole.
The legal basis of the Bank of Italy’s powers consists of Directive No. 2013/36/EU and Regulation No. 575/2013, on access to the activity of credit institutions and the prudential supervision of credit institutions and investment firms, both adopted by the European Parliament and by the Council. The European legislation specifies a set of macroprudential measures for the banking sector that the competent or designated national authorities may take in order to prevent or mitigate risks to the stability of the financial system. The Bank of Italy is the authority designated to take such measures in Italy. In addition, the Bank of Italy can adopt measures to address the systemic risks that may originate from other financial intermediaries and from the markets it supervises.
The Bank of Italy performs its tasks of safeguarding financial stability through intense analysis and supervision of the financial system’s single components and of the system as a whole, in order to promptly identify vulnerabilities and risks for financial stability.
The Bank of Italy disseminates its assessments of the risks to the stability of the financial stability in its publications, first of all the Financial Stability Report. Technical documents of broad interest are published in the Notes on Financial Stability and Supervision series.
In carrying out its tasks of safeguarding the stability of the national financial system, the Bank of Italy contributes to the activity of the European institutions and other international organizations.
The Eurosystem and financial stability
The Bank of Italy is part of the Eurosystem and participates in its decisions. The Eurosystem conducts analyses and evaluates the risks for financial stability, performs advisory functions within the EU, promotes international cooperation, and is responsible for oversight of financial market and payment system infrastructures.
For the pursuit of financial stability, alongside the powers of national authorities to use macroprudential measures, the European legislation instituting the Single Supervisory Mechanism (Council Regulation No. 1024/2013) assigns to the European Central Bank tasks for the coordination of national authorities and powers of intervention, particularly for strengthening the macroprudential measures adopted by the national authorities for the banking sector. The ECB exercises these powers having due regard to the involvement of the national authorities (within the Financial Stability Committee).
European Systemic Risk Board
The Bank of Italy is a member of the European Systemic Risk Board (ESR B), instituted in 2011 and charged with overseeing the financial system and helping to prevent or mitigate the risks to financial stability in the European Union. The ESRB is chaired by the President of the ECB. Its decision-making body is composed of top-level representatives of the national central banks, national supervisory authorities and European Commission; a representative of the European Council participates as an observer.
Financial Stability Board
The Bank of Italy participates in the Financial Stability Board (FSB), which gathers together representatives of the main authorities responsible for financial stability in numerous advanced and emerging countries (largely coinciding with those of G-20) and of international standard-setting institutions. The FSB coordinates the work of the financial authorities and international organizations to promote the implementation of effective regulatory and supervisory policies, thereby contributing to global financial stability.
Tasks regarding financial stability
EU legislation assigns to the Bank of Italy the power of activating macroprudential instruments in the banking sector. The Bank of Italy is responsible for the possible application of instruments such as countercyclical capital buffers and capital buffers for global and national systemically important credit institutions. It can set higher capital requirements for banks in relation to their exposures towards specific sectors. The Bank of Italy can also use macroprudential instruments not harmonized by EU legislation in order to prevent or mitigate risks to the stability of the financial system.
- The recent asset quality review on non-performing loans conducted by the Bank of Italy: main features and results
- Main supervisory activities with regard to the Monte dei Paschi di Siena group
Research note transmitted to the Minister of Economy and Finance, Vittorio Grilli, in relation to the testimony given 29 January 2013 by the Minister before the Finance Committees of the Chamber and the Senate in joint session.