This enhanced tailoring of supervision minimizes regulatory burden for the many community banks that are well managed, and directs supervisory resources to higher-risk activities where they are most needed to contain the risks that can result from aggressive banking strategies. Similarly, the Federal Reserve tailors its supervision of holding companies based on the size, complexity, and risk profile of each institution.
Therefore, the agreement marks a step toward the establishment of such a market, and also helps by ending the uncertainty accumulated over previous months. Other measures recently adopted by the Italian authorities are also meant to address the root causes of the high stock of NPLs. Those on fiscal deductibility of provisioning have removed a penalising tax treatment of Italian banks.