The Federal Reserve and, to a lesser extent, the Bank of England have also used this instrument to signal their intention to provide a greater stimulus to the economy. Unconventional measures affecting the size and composition of the central bank’s balance sheet are also being extensively used. In the euro area, in October 2008, the ECB changed its liquidity management policy, implementing its main refinancing operations at a fixed rate with full allotment. In May 2009 it lengthened the average maturity period of monetary policy operations and set in train a purchase programme for covered bonds and other similar assets to reactivate this market segment. One year later, faced with the qualitative leap that the euro area sovereign debt crisis entailed, it introduced the Securities Market Programme. Under this programme it purchased, always on the secondary market, public debt of the countries where the tensions were disproportionately restricting the funding of their economies. Finally, when doubts over the viability of the euro reached critical levels in summer 2012, the ECB responded with an announcement that it would, within its mandate, do whatever was needed to save the euro. It designed a new securities purchase programme – the Outright Monetary Transactions Programme – which, though its use has not been necessary, has been instrumental in changing expectations in a favourable direction for market stability and normalisation. Conversely, in the United States, the changes in the Federal Reserve balance sheet have been linked to massive asset purchases as part of a standard quantitative easing programme.

Other factors that continue to affect banking sector profitability are the lower volume of banking activity – in a setting in which the year-on-year rate of change in credit to the resident private sector remains in negative territory – and the presence of still significant levels of non-productive assets on banks’ balance sheets. These assets weigh on profitability, despite the reductions achieved in the volume of non-performing loans that I spoke of earlier. Lastly, I must also mention the increase in legal costs, which has recently become a further factor in the decline in profitability. 4/8  By contrast, the decrease in the volume of non-performing loans from the highs of 2013, which has been reflected in a continued decline in banks’ provisioning needs, is one of the main factors making a positive contribution to Spanish credit institutions’ income statements, offsetting to a certain extent the decline in margins. 2.2 Resolution requirements: MREL The second challenge I wish to highlight is the need for banks to comply with the new resolution requirements that were introduced post-crisis, aiming to secure the stability of the financial system, minimise the cost for the taxpayer of banking crises and ensure that banks’ critical functions are maintained. As you are aware, banks will have to comply with the minimum requirement for own funds and eligible liabilities (MREL). For that purpose they will have to have, on their balance sheets, instruments that provide sufficient loss-absorbing capacity and that will allow them, where appropriate, to recapitalise.