Subsequently, December 2017 saw the completion of the second phase of reforms in the Basel III framework. Among other things these reforms introduced enhancements to the standardised methods for calculating credit and operational risk, restrictions on the use of internal models and changes in the leverage ratio. These changes will be implemented in two phases, due to be completed in 2027. As regards bank resolution, the common European resolution framework defines the situations in which failing banks must be subject to liquidation or resolution. For this purpose a new category of non-preferred debt instruments has been created, ranked below senior debt in the order of priority of creditors to facilitate compliance with minimum requirements for the own funds and eligible liabilities available to absorb losses. The Single Resolution Board has started to establish the requirements for these liabilities for European significant institutions and they will gradually be extended to less significant institutions. Smaller Spanish institutions tend basically to be funded via capital and deposits rather than by tapping capital markets. While this feature generally gives their liabilities greater stability, it means they have lower levels of eligible liabilities and a more limited pool of investors, with possible difficulties accessing non-preferred debt markets. Lastly, issuance of this type of instrument is likely to have a much bigger impact on the cost of funding for medium-sized Spanish institutions than for larger ones. This is due to the difficulties accessing markets I mentioned earlier, in conjunction with the higher liquidity premia potential investors are likely to demand.

The application of artificial intelligence and the use of large databases with real-time information (Big Data) may also provide for significant efficiency gains in terms of both business activity and regulatory compliance. 9/11  Similarly, the use of new technologies in the financial sector may offer advantages to society in that it reduces intermediation costs, improves households’ and SMEs’ access to finance and facilitates financial inclusion (see Chart 8). Financial disintermediation Another factor making the environment in which credit institutions operate more competitive is the advance of financial disintermediation. In Spain, as in countries such as Germany and Italy, the bulk of non-financial corporations’ borrowing has traditionally come from bank loans. However, in other countries, such as the United States and the United Kingdom, capital markets play a much bigger role in corporate finance. There is no consensus as to the optimal financing structure to best ensure financial stability and economic growth. On the one hand, it is true that the interaction between companies and banks involves the handling of non-public information about companies that may facilitate their access to bank lending at lower cost. On the other hand, having liquid and efficient financial markets makes it possible to channel households’ savings into long-term projects with a larger share of finance in the form of capital. Also, although the experience of the recent international crisis has taught us that an appropriate diversification of companies’ sources of financing reduces their vulnerability to shocks affecting bank lending channels, there is also evidence that capital markets are more procyclical.