These were a direct response to the perceived failings of Basel I. In particular, the lack of granularity in risk weights under Basel I was felt to have created arbitrage possibilities, with risk migrating to lower risk-weighted asset categories. Permitting use of banks’ own internal models to calculate risk weights provided such granularity. It also aligned regulatory capital with banks’ own economic capital calculations, thereby prospectively reducing arbitrage incentives. By setting internal model-based capital  BIS central bankers’ speeches  1  charges below those from simple standardised approaches, Basel lI provided banks with strong incentives to upgrade their risk management technology. The move from regulator-set to model-set capital charges had two significant side-effects. First, it added materially to complexity. For a large, complex bank, the numbers of calculated risk weights rose from five to hundreds of thousands, perhaps millions. Second, the use of models moved decision-making on risk weights from regulators to banks. Once a model was admitted, the system was essentially self-regulatory. The final Chapter, Basel III, commences in 2010. Experience during the financial crisis demonstrated both that capital had been set too low and that it had been defined too broadly. Basel III raised the level, and narrowed the definition, of bank capital. In those respects, it was a very significant improvement over its predecessors. At the same time, the complexity and self-regulatory aspects of Basel II remained in Basel III. Each of these historical chapters was a logical response to the perceived problems of the day.

This indigenous population growth has been reinforced in recent years by the phenomenon of immigration, and has been an essential explanatory factor of our recent growth. In addition to the foregoing causes, which can be quantified, there are others that are more difficult to measure since they refer to qualitative aspects, but which are equally relevant. Thus, for instance, Spanish trade unions have progressively adopted a bargaining strategy more in keeping with the requirements stemming from Spanish euro area membership and with the challenges posed by globalisation, and that has been conducive to employment generation and the growth of the Spanish economy in recent years. 2  BIS Review 32/2007  Something similar may be said of the substantial continuity over time of the broad thrust of economic policy, irrespective of the different governments that have successively been in power. Such continuity has also impregnated the natural debate under democracy between the various policy options. Underpinning this debate has been a degree of agreement on the importance of stability-oriented macroeconomic (fiscal and monetary) policies and the microeconomic policies geared to improving the workings of markets. And this is not something that is found in all developed countries. Specifically, continuity in privatisation and market liberalisation policies, which has placed Spain in a leading position in continental Europe and has contributed significantly to the growth in the past 20 years, would not have been possible without this underlying agreement.