Apart from the level of costs, the large loan losses incurred in the last few years have made a major contribution to the decline in profitability. The risk-asset ratio of the Italian banking system is 13 per cent, well above the requirement of 8 per cent established in the Basle Capital Accord.
These discrete periods occurred when capital flowed in as a result of high commodity prices, sustained public borrowing, and low yields in advanced economies – not because of inflation targeting. All else being equal, the inflationtargeting framework has lowered inflation and rates, reducing the pull on hot money in recent times.