2) slow lending: within the framework of the ECB's expansionary monetary
policy, low levels of nominal interest rates for households and firms (2.05% and 1.56%,
respectively) have led to an increase in lending to the population since 2014, while
loans to firms diminishes since 2011;
3) reduction of non-interest income as a result of unfavorable changes in the
market;
4) increase of non-recurring expenses (for example, measures for early
retirement, resolution fund contributions);
5) significant amount of loan-loss provisions.
In 2008-2016 the cost-to-income ratio of the Italian banking sector generally
increased by 3.4% (64.2% at the beginning versus 67.6% at the end), as currently a
significant reduction of income is not offset by a slight reduction of costs.
Regarding the structure of banks, it can be argued that medium and small Italian
banks are less stable than large credit institutions. Less significant banks (LSB, small
banks under the supervision of the Bank of Italy) on average are more profitable and
less cost effective than significant banks (14 largest banks under the supervision of the
ECB), while their capitalization is higher. However, in general, LSBs have more
serious problems with asset quality (higher rates of non-performing loans and lower
coverage ratios). This may be explained by a higher tendency of LSBs to smaller and
more risky firms and a greater degree of lending [9].
In order to test the resilience of large significant banks in a crisis situation, in
particular, when investors escape from market or when there is a deterioration of bank’s
balance sheet, the ECB regularly conducts stress tests, checking the resilience of large
banks in a crisis situation. The stress tests were conducted in 2009, 2010, 2011, 2014
and 2016, and the next one is scheduled for 2018 [12].
Stress testing of 2014 found that out of the 123 largest credit institutions in the
Eurozone, 25 banks did not pass the test; the total capital deficit amounted to 25 billion
euros in 25 banks. Among them there were 4 Italian, 2 Slovenian, 2 Greek, 1 bank from
Austria, Ireland, Portugal, and Cyprus. The largest lack of capital (-2.11 billion euros)
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