Since 1990, the Italian banking system has undergone a rapid process of consolidation, involving about 60 percent of total Italian banking assets, as stated in the U.S. Department of Commerce's 2008 Country Commercial Guide. The State has also significantly reduced its direct ownership in the Italian banking system. According to the International Monetary Fund's (IMF) 2004 detailed assessment of Italy's compliance with the Basel Core Principles (BCPs) for Effective Banking Supervision, Italy's observance of the BCPs is high. Per the IMF report, the Italian supervisory system was found to be in compliance with twenty-four BCPs; largely compliant with five; and noncompliant with one BCP. In a subsequent (2006) Financial System Stability Assessment, the IMF notes that Italian authorities have addressed some of the recommendations addressed in the 2004 IMF report. The Bank of Italy namely introduced a new reporting requirement for banks to monitor the impact of moving to a 180-day (ultimately 90-day) past-due definition for non-performing loans. The authorities also made some progress in addressing the lack of regulation on lending to related parties. However, weaknesses remain with regards to the legal protection for supervisors, and the independent validation of supervisory information through on-site examination or external auditors. Legislative Decree No. 385 of 1993 (Banking Law), and Legislative Decree No. 58 of 1998 (Consolidated Law on Financial Intermediation) establish the general framework of laws governing the banking and financial system, and clearly identify the powers and tasks of the different authorities involved in supervising the financial sector.

General Overview

The International Monetary Fund (IMF) conducted a detailed assessment of Italy's compliance with the Basel Core Principles (BCPs) for Effective Banking Supervision in June 2003, and published its results in April 2004. The report finds that the Italian supervisory system is of high standard, achieving full compliance with twenty-four of the thirty BCPs (with Principle 1 being divided into 6 sub principles). Five principles, namely BCP 8 on loan evaluation and loan loss provisioning; BCP 10 on connected lending; BCP 14 on internal control; BCP 19 on validation of supervisory information; and BCP 21 on accounting standards were assigned a "largely compliant" rating. With regards to BCP 1(5) on the legal protection for supervisors, the supervisory system was found to be "non-compliant". In a subsequent (2006) Financial System Stability Assessment (FSSA), the IMF notes that the Italian authorities have addressed some of the recommendations stated in the 2004 IMF report. The Bank of Italy (BoI) introduced a new reporting requirement for banks to monitor the impact of moving to a 180-day (ultimately 90-day) past-due definition for non-performing loans (NPLs). The authorities also made some progress in addressing the lack of regulation on lending to related parties. However, the BoI continues to lack the legal powers to remove expeditiously those banks' directors or senior officers who may have become unfit for their duties. There has also been limited progress in granting the BoI the authority to remove bank external auditors when their performance is deficient.

The regulatory framework for banking supervision in Italy is mainly comprised of Legislative Decree No. 385 of 1993 (Banking Law), and Legislative Decree No. 58 of 1998 (Consolidated Law on Financial Intermediation). The EU Capital Requirements Directives No. 2006/48/EC and No. 2006/49/EC were implemented in 2006 through the BoI's Circular No. 263 of 2006. According to the IMF's 2004 report, Italy's system of banking supervision is a component of the supervisory framework for the financial services sector that is organized around four independent authorities, namely the BoI for the banking industry, the Supervisory Authority for Private Insurance Undertakings and Insurance Undertakings of Public Interest (ISVAP) for the insurance industry, the Supervisory Authority for Pension Funds (COVIP) for pension funds, and the National Commission for Listed Companies and the Stock Exchange (CONSOB), together with the BoI, for the securities industry.

Since 1990, the Italian banking system has undergone a rapid process of consolidation, involving about 60 percent of total Italian banking assets, as stated in the U.S. Department of Commerce's 2008 Country Commercial Guide. Per the same report, the number of banks in Italy fell from 1,000 to less than 800 at the end of 2006, with a total of 80 Italian banking groups. The consolidation process in Italy is among the largest in Europe in terms of bank assets, and is expected to continue over the coming years. The structure of the Italian banking system consists of four classes of intermediaries. The top tier is composed of two groups, namely, UniCredit and Intesa Sanpaolo. These groups are large with significant international operations. The next tier is comprised of medium-sized/large groups that generally have significant domestic operations. The third class of banks consists of institutions, whose operations are predominantly domestic and whose average size is below that of the six largest groups. The fourth tier consists of small size banks whose activities deal with financing the local economy and according to the BoI's 2006 Annual Report has about 596 institutions. Since 1992, the State has significantly reduced its direct ownership in the Italian banking system.

According to the IMF's 2004 report, at the time, the large banks were at an advanced stage of preparation for adopting Basel II and the International Accounting Standards (IAS) requirements, supported by the BoI and the Italian Banking Association. These preparations have significantly helped strengthen credit risk management in the Italian financial system. The 2006 BoI report mentions that per European Union (EU) requirements, Italy implemented enabling acts to adopt Basel II requirements in its prudential regulations for banks. In the EU context the report notes that "the transposition of the new capital adequacy requirements (Basel II) was concluded in 2006 with the adoption, on 14 June, of Directive 2006/48/EC relating to the taking up and pursuit of the business of credit institutions, and Directive 2006/49/EC on the capital adequacy of investment firms and credit institutions" (p. 158).

The 2006 BoI report notes that "external openness of the banking system seems greater in Italy than in the other main countries of continental Europe [such as] Germany, France and Spain" (p. 145). The report also notes that the internationalization of the Italian banking system remained relatively constant during the past year, with 26 Italian groups established abroad. Italy's presence is most notable in Eastern Europe, where Italian-owned banks account for approximately half of the national banking system in Croatia, and for about one fifth in Slovakia, Poland, Bulgaria and Hungary. Branches and subsidiaries of foreign banks also expanded their presence on the Italian market in 2006, accounting for about 10.5 percent of total assets. The BoI's 2006 Annual Report stresses that while Italian banks have substantially improved their position relative to the banks of the other main European countries, progress still needs to be made in loan quality and capital adequacy.

At the EU level, the Banking Supervision Committee of the European System of Central Banks' and the Committee of European Banking Supervisors formulated a set of joint recommendations with the aim of "reinforcing cooperation and information exchange in the event of systemic crises with potential cross-border implications, affecting banks, financial markets and infrastructure" (p. 157). Pursuant to the White Paper on Financial Services Policy for 2005-2010, the EU Commission continues to monitor regulatory activity and prudential supervision in Europe.

The Principles

1. (1) Clear responsibilities and objectives for each supervisory agency.

FC

Italy complies with this principle, as stated in the IMF's 2004 report, and the objectives and responsibilities of the credit authorities are set out in the legislation. The Banking Law and the Consolidated Law on Financial Intermediation establish the general framework of laws governing the banking and financial system, and clearly identify the powers and tasks of the different authorities involved in supervising the financial sector. Pursuant to the Banking Law, as stated in the IMF's 2004 report, the BoI is responsible for the overall stability of the financial system, as well as the promotion of competition in the Italian banking system. The BoI is also provided with a range of instruments to achieve remedial action at individual institutions. According to the IMF's 2004 report, the supervisory program is broad, and covers prudential supervision of deposit taking institutions and other financial institutions, assessment of transparency controls in banking and financial transactions, and cooperation with judicial authorities. The Banking Law identifies the Inter-Ministerial Committee on Credit and Savings (ICCS) as the administrative body which issues broad guidelines on prudential supervision in the area of credit activities and the protection of savings.

1.(2) Operational independence and adequate resources.

FC

According to the IMF's 2004 report, Italy complies with this principle. Per the same report, the BoI recommends regulatory and supervisory policies, and is operationally independent in its day-to-day supervisory activities. At the time of the 2004 assessment, the BoI supervised approximately 1,430 credit institutions and investment firms, and committed significant resources to an advanced off-site monitoring capacity. While, in practice, the ICCS and the Minister of Economy and Finance do not have direct operational involvement in the supervision and regulation of financial institutions, it is difficult to determine whether supervisory policies, plans, and processes are entirely independent from the government.

1.(3) A suitable legal framework for authorization and ongoing supervision.

FC

Italy complies with this principle, as stated in the IMF's 2004 report and the legal framework and practices governing the entry of credit institutions are satisfactory. The regulatory framework for banking supervision in Italy is mainly comprised of the Banking Law, and Consolidated Law on Financial Intermediation.

1.(4) A suitable legal framework to address compliance with laws as well as safety and soundness concerns.

FC

Italy complies with this principle, as stated in the IMF's 2004 report, and the enforcement powers of the bank supervision authorities are satisfactory. Furthermore, the BoI's enforcement capacity, stemming from coordination arrangements between on-site and offsite supervisors and sound legal enforcement powers, is generally adequate.

1.(5) Legal protection for supervisors.

NC

Italy is non-compliant with this principle, as stated in the IMF's 2004 report. Per the same report, "the Italian system does not offer legal protection to its supervisors against court proceedings stemming from measures adopted in the performance of their functions in good faith" (p. 13). While the BoI covers the costs of legal defense for its employees, it does not fully ensure legal protection. Amendments to the legislation are encouraged to provide legal protection to the supervisory authority and its officers. According to the IMF's subsequent 2006 FSSA, the supervisory authority and its officers continue to be liable for legal procedures stemming from measures adopted in good faith in the performance of their functions.

1.(6) Arrangement for sharing of information between supervisors and protection of confidentiality of shared information.

FC

According to the IMF's 2004 report, Italy complies with this principle. The BoI, the ISVAP, the CONSOB, the Pension Fund Supervisory Authority, and the Foreign Exchange Office are required to cooperate through ongoing formal and informal contacts. Furthermore, Memoranda of Understanding (MoUs), and, in some cases, bilateral confidentiality agreements, have been signed with EU counterparts and a number of non-EU countries to ensure adequate cross-border information exchange.

2. Clearly defined permissible activities for banks and control of the use of the word 'bank'.

FC

As noted in the IMF's 2004 report, Italy complies with this principle. Per the same report, "the framework and practices governing the activities of credit institutions, their licensing and investment criteria, as well as their ownership structure are satisfactory" (p. 13). The Banking Law defines bank as "an undertaking authorized to engage in fund raising on a public basis and the granting of credit" (p. 31). While banks are authorized to engage in financial activities subject to mutual recognition, their direct involvement in collective asset management and insurance business is restricted.

3. Criteria for structure, directors, operating plan, controls, financial condition and capital base.

FC

According to the IMF's 2004 report, Italy complies with this principle. Per the same report, "the framework and practices governing the activities of credit institutions, their licensing and investment criteria, as well as their ownership structure are satisfactory" (p. 13). The Banking Law, regulations and supervisory instructions set out comprehensive criteria and conditions for licensing. In the case of the establishment of branches or subsidiaries of foreign banks, the BoI obtains the prior consent of the home-country supervisory authority and evaluates the existence of conditions for effective supervision.

4. Authority to review and reject transfer of ownership.

FC

As noted in the IMF's 2004 report, Italy complies with this principle. Per the same report, "the framework and practices governing the activities of credit institutions, their licensing and investment criteria, as well as their ownership structure are satisfactory" (p. 13). While the concept of significant ownership is not clearly stipulated in the law, supervisory instructions of the BoI define a significant shareholder as "a person that directly or indirectly holds at least 5 percent of the voting capital or, in any case, control of the banking group holding company or an unaffiliated bank" (p. 36).

5. Authority to review major acquisitions and investments.

FC

According to the IMF's 2004 report, Italy complies with this principle. Per the same report, "the framework and practices governing the activities of credit institutions, their licensing and investment criteria, as well as their ownership structure are satisfactory" (p. 13). The IMF report notes that regulations define acquisitions and investments which need the BoI's approval, and provide criteria to judge individual proposals. It is crucial that new acquisitions and investments do not expose the investor to undue risks or hinder effective supervision.

6. Minimum capital adequacy requirements (meet Basle Capital Accord for internationally active banks).

FC

According to the IMF's 2004 report, Italy complies with this principle. Per the same report, "prudential regulations are in line with established best practices and close consultation between the regulators, and the banking community facilitates the smooth introduction of regulatory reforms" (p. 13). Furthermore, capital requirements comply with the Basel Capital Accord. More recently, the 2006 BoI report mentions that per European Union (EU) requirements, Italy implemented enabling acts to implement Basel II requirements to its prudential regulations for banks. In the EU context the report notes that "the transposition of the new capital adequacy requirements (Basel II) was concluded in 2006 with the adoption, on 14 June, of Directive 2006/48/EC relating to the taking up and pursuit of the business of credit institutions, and Directive 2006/49/EC on the capital adequacy of investment firms and credit institutions" (p. 158). In 2006, the BoI issued Circular No. 263 of 2006, containing the New Regulations for the Prudential Supervision of Banks, which sets out a new framework for the capital adequacy supervision of banks and banking groups, and implements the above EU Capital Requirements Directives.

7. A method exists for the evaluation of procedures related to loans, investments and portfolio management.

FC

According to the IMF's 2004 report, Italy complies with this principle. Per the same report, "prudential regulations are in line with established best practices and close consultation between the regulators, and the banking community facilitates the smooth introduction of regulatory reforms" (p. 13). Furthermore, the regulatory framework regarding the internal controls of credit institutions, and the monitoring by the supervisory authorities of their implementation, is satisfactory.

8. Policies, practices and procedures for evaluating the quality of assets and the adequacy of loan loss provisions and reserves.

CP

The rules for the recording of loans in the annual accounts are established by law in compliance with the EU Directives. In its 2004 report, the IMF notes that securitization of loans is monitored comprehensively by the BoI through very extensive reporting requirements. Securitization has allowed banks to improve credit risk management. However, the 2004 IMF report rated Italy to be only largely compliant with this principle. The IMF's 2004 report stated that the system in place delayed "the recognition of impairment in the performance of a loan and the suspension of recognition of income from impaired loans" (p. 16). In this regard, it recommended aligning Italy's criteria for NPLs to international standards. This shortcoming was expected to be addressed following the adoption of the new International Financial Reporting Standards (IFRS) in 2005. In December 2005, according to a 2007 report published by the European Committee of Central Balance Sheet Data Offices (CBSO), the BoI issued regulations for the implementation of IFRS for banks and financial institutions.

As a follow-up to the 2004 recommendations, according to the IMF's subsequent 2006 FSSA, the BoI introduced "a new reporting requirement for banks to monitor the impact of moving to a 180-day (ultimately 90-day) past-due definition for impaired loans" (p. 43). Banks will have to converge from the 180-day to the standard 90-day past due criteria for NPLs at the latest by 2011, in line with the definition of default applied under Basel II. With regards to the quality of bank assets, the BoI's 2006 Annual Report highlighted that "the overall quality of banking groups' exposure improved in 2006" (p. 150).

9. Prudential limits and management information system on concentration of exposure.

FC

According to the IMF's 2004 report, Italy complies with this principle. Per the same report, "prudential regulations are in line with established best practices and close consultation between the regulators, and the banking community facilitates the smooth introduction of regulatory reforms" (p. 13). Furthermore, there is proper prudential supervision of large exposures. The IMF report notes that prudential limits on large exposures and connected lending are set in line with EU Directives on large exposures, and with tighter limits for connected persons, on both a solo and a consolidated basis. Furthermore, the concentration of credit portfolio is examined through off-site supervision and on-site inspections, and banks are required to have information systems and procedures able to ensure constant compliance with the rules on large exposures.

10. Arm's length rule and monitoring for connected lending.

CP

Italy is only largely compliant with this principle, as stated in the IMF's 2004 report, due to the lack of provisions requiring that exposures to connected or related parties only be granted on market terms. There is also no comprehensive definition of, or lending limits on, connected or related parties. The IMF report strongly recommended issuing "a comprehensive regulation on connected lending to address its definition, overall limits, and reporting to the BI" (p. 78). The IMF report notes that prudential limits on large exposures and connected lending are set in line with EU Directives on large exposures and with tighter limits for connected persons, on both a solo and a consolidated basis. According to the IMF's subsequent 2006 report, authorities have made some progress in addressing the lack of regulation on lending to related parties. In July 2005, per the same report, the ICCS approved a guideline on connected lending, and entrusted the BoI with issuing a more detailed regulation in this area. The BoI has prepared a draft regulation to implement the ICCS guideline. However, there is little further information publicly available regarding this draft regulation.

11. Policies and procedures for country risk and transfer risk.

FC

According to the IMF's 2004 report, Italy complies with this principle. Per the same report, "prudential regulations are in line with established best practices and close consultation between the regulators, and the banking community facilitates the smooth introduction of regulatory reforms" (p. 13). Furthermore, prudential supervision of country risk is of high standard. The IMF report notes that banks are required to adopt internal procedures to evaluate country risk and monitor their own exposure. The BoI assesses banks' exposures to country risk on a quarterly basis. The BoI's 2006 Annual Report notes that, "the Italian banking system's exposure to developing countries and off shore centers (defined using BIS criteria) rose by 47.9 percent in 2006 to €135 billion at the end of the year" (p. 152). However, the report also states that the exposure represents only a small portion of Italian banks' assets at 4.8 percent.

12. Measuring and monitoring market risk. Limit and/or specific capital charge on market risk exposure.

FC

According to the IMF's 2004 report, Italy complies with this principle. Per the same report, "prudential regulations are in line with established best practices and close consultation between the regulators, and the banking community facilitates the smooth introduction of regulatory reforms" (p. 13). Furthermore, prudential supervision of market risk is of high standard. The IMF report notes that capital requirements and organizational standards are adequate for the measurement and control of market risks by banks. Furthermore, compliance with the rules is ensured through "model validation, statistical analysis, meetings with risk control managers, and on-site inspections" (p. 51).

13. Comprehensive risk management processes.

FC

According to the IMF's 2004 report, Italy complies with this principle. Per the same report, "prudential regulations are in line with established best practices and close consultation between the regulators, and the banking community facilitates the smooth introduction of regulatory reforms" (p. 13). Furthermore, the supervisory and regulatory framework to ensure sound risk management systems is satisfactory. The BoI examines four broad types of risks, namely, credit risk, market risk, country risk, and interest rate risk, using a "bottom-up" approach to financial surveillance. The IMF report notes that the BoI meets with banks' risk control officers, and monitors the exposure to risk using indicators based on the residual maturity and the currency of transactions. Although it has legal powers to do so, the BoI does not require banks to hold capital against operational risks, which are addressed in the broader context of the rules on internal controls. This shortcoming is expected to be addressed with the implementation of Basel II. Basel II was implemented in 2006 through BoI issued Circular No. 263 of 2006 which implemented the EU Capital Requirements Directives.

14. Adequate internal controls.

CP

Italy is only largely compliant with this principle, as stated in the IMF's 2004 report. While the supervisory and regulatory framework to ensure sound internal controls is satisfactory, the supervisory authority lacks sufficiently clear legal authority to require expeditious change in the composition of a bank's board of directors and management when "fit and proper" criteria are no longer met. In this regard, authorities are encouraged to amend the Banking Law and applicable regulations "to legally empower the BoI to remove expeditiously those bank directors or senior officers who may have become unfit for their duties" (p. 78). According to the IMF's subsequent (2006) FSSA, the BoI continues to lack the legal power to remove bank directors or senior officers in a timely manner.

15. Strict "know-your-customer" rules and high ethical and professional standards.

FC

Italy complies with this principle, as stated in the IMF's 2004 report, and the supervisory and regulatory framework to control money laundering is satisfactory. The regulatory framework for anti-money laundering (AML) and combating the financing of terrorism (CFT) in Italy includes the 1991 AML Law No. 143, and the 2001 Law for the Establishment of the Financial Security Committee (FSC) No. 431 of 2001. The EU's Third Money Laundering Directive No. 2005/60/EC was also transposed into Italian law, and Legislative Decree No. 231/2007 implements parts of the EU Directive. The Italian Foreign Exchange Office is the central AML authority, whereas the FSC, which includes representatives of various ministries, agencies and law enforcement bodies, is the lead authority for CFT. In its 2004 report, the IMF notes that the AML Law No. 197 of 1991 establishes strict requirements "to ensure that banks know their customers fully and promptly report suspicious transactions to the competent authorities" (p. 58).

16. Effective supervisory system consisting of on-site and off-site supervision.

FC

Italy is compliant with this principle, as stated in the IMF's 2004 report. Per the same report, the information available to the BoI for monitoring and early detection of troubled institutions is "abundant and timely" (p. 15). Integrated on-site and offsite inspections allow the BoI to stay well informed on banks' financial condition and management quality. Banking supervision relies heavily on offsite supervision. Conversely, on-site supervision often takes place at somewhat long intervals of 3 to 6 years, and does not depend on external auditors. Pursuant to the Banking Law, the BoI has strong legal authority to ensure the reliability of data submitted by banks. However, the 2004 report found a lack of procedures to assess the effectiveness of on-site and offsite functions.

17. Regular contact with bank management and understanding of bank's operations.

FC

Italy is compliant with this principle, as stated in the IMF's 2004 report. Per the same report, the information available to the BoI for monitoring and early detection of troubled institutions is "abundant and timely" (p. 15). Frequent contact with banks' management and staff allows the BoI to keep well informed on banks' financial condition and management quality.

18. Analytical reports and statistical returns on solo and consolidated basis.

FC

Italy complies with this principle, as noted in the IMF's 2004 report. Per the same report, the information available to the BoI for monitoring and early detection of troubled institutions is "abundant and timely" (p. 15). Detailed statistical data requirements also allows the BoI to keep well informed on banks' financial condition and management quality.

19. Independent validation of supervisory information through on-site examination or external auditors.

CP

According to the IMF's 2004 report, Italy largely complies with this principle. While the BoI requests auditors to examine specific aspects of banks' financial accounts, it does not rely on external auditors for the purpose of on-site inspections. Furthermore, on-site supervision often takes place at somewhat long intervals of 3 to 6 years. In this context, it is recommended that the BoI review the use of external auditors in specific areas, including AML, in the execution of its own mandate. The BoI should also establish the scope and standards for banks' external audits, and review the status of banks which are not subject to external audits. Finally, amendments to the Banking Law are desirable to give the BoI powers to revoke the appointment of banks' external auditors when their performance is deficient. According to IMF's subsequent 2006 FSSA, limited progress has been made toward granting BoI the authority to remove bank external auditors when their performance is deficient. In this regard, it is recommended that the BoI cooperates closely with the CONSOB to ensure that deficient external auditors are removed promptly from their audit responsibilities.

20. Ability to supervise on a consolidated basis.

FC

According to the IMF's 2004 report, Italy complies with this principle. The IMF report notes that the Banking Law gives legal powers to the BoI "to perform supervision across the entire activities of an institution, whether those activities be carried on directly (including via branch operations outside of Italy) or via subsidiaries and/or affiliates" (p. 68). The BoI conducts consolidated supervision by means of on-site inspections, prudential supervision, and information monitoring. Although the integration between the banking and insurance sector is increasing, financial conglomerates are still at an early stage of development in Italy. At the end of 2001, there were 32 banking groups holding significant equity interests in the capital of insurance companies, and 10 insurance groups with participation in the capital of banks and securities firms.

21. Consistent accounting policies and practices that provide a true and fair view of the financial condition of the bank.

CP

Italy was found to be only largely compliant with this principle. The IMF's 2004 report stated that the system in place delayed "the recognition of impairment in the performance of a loan and the suspension of recognition of income from impaired loans" (p. 16). In this regard, it was recommended to align Italy's criteria for impaired loans to international standards. This shortcoming was expected to be addressed following the adoption of IFRS in 2005. In December 2005, according to the 2007 CBSO report, the BoI issued regulations for the implementation of IFRS for banks and financial institutions.

As a follow-up to the 2004 recommendations, the BoI "introduced a new reporting requirement for banks to monitor the impact of moving to a 180-day (ultimately 90-day) past-due definition for impaired loans" (p. 43). According to a regulatory and standard-setting framework assessment published by the National Board of Chartered Accountants and Accounting Experts in 2005, the BoI has the power to enact regulations regarding the drawing up of financial statements of the banks and similar financial institutions contained in Legislative Decree No. 87/1992 on the balance sheets of banks and financial companies. Pursuant to the Legislative Decree, banks and financial institutions are required to provide the BoI with information, data and any requested documents, including financial statements.

22. Adequate supervisory measures to ensure timely corrective action.

FC

According to the IMF's 2004 report, Italy complies with this principle. Per the same report, the BoI's enforcement powers are adequate. More specifically, the BoI "has the power to impose penalties on a problem bank's governing bodies" (p. 73).

23. Banking supervisors must practice global consolidated supervision over their internationally-active banking organizations.

FC

According to the IMF's 2004 report, Italy complies with this principle. Per the same report, "prudential regulations for banking groups are in line with established best practices and the close cooperation between the BoI and foreign regulators supports the growth of sound cross-border financial activities" (p. 16). Moreover, the regulatory framework for global consolidated supervision over internationally-active banking organizations is satisfactory. Cooperation agreements have been entered into with a large number of countries for the sharing of information, periodic meetings and the performance of supervisory activities.

24. International exchange of information with other supervisors.

FC

According to the IMF's 2004 report, Italy complies with this principle. Per the same report, "prudential regulations for banking groups are in line with established best practices and the close cooperation between the BoI and foreign regulators supports the growth of sound cross-border financial activities" (p. 16). Moreover, coordination with foreign supervisors to cover operations by Italian banks abroad is adequate. As stated in the IMF's 2006 FSSA, the BoI has established close cooperation, including MoUs, with many foreign supervisory authorities responsible for the foreign operations of Italian banks. The BoI's 2006 Annual Report highlights that MoUs were signed in 2006 with the supervisory authorities of Poland and Serbia, where Italian banks account for approximately 20 percent of market share.

25. Supervision of local operation of foreign banks and information sharing with home country supervisors.

FC

According to the IMF's 2004 report, Italy complies with this principle. Per the same report, "prudential regulations for banking groups are in line with established best practices and the close cooperation between the BoI and foreign regulators supports the growth of sound cross-border financial activities" (p. 16). Moreover, foreign banks' operations in Italy are adequate.