However, quantitative studies show that a stronger capital base for banks has a positive net effect on the economy: it  BIS central bankers’ speeches  9  increases the system’s ability to withstand adverse shocks and reduces the likelihood of crises; for individual intermediaries, it reduces the risk premium on fund-raising and the cost of equity capital itself.
A recovery in earnings makes it possible to increase capital internally. In 2010 the five largest Italian banking groups’ return on equity was again about 4 per cent, compared with an average of 7.8 per cent for twelve large European intermediaries. Sluggish asset growth, higher funding costs and low credit quality were the main factors.