We can conclude from the results that the activation of the countercyclical buffer in financial cycle upturns gives rise to an easing in credit and GDP growth under the baseline scenario, but, above all, it significantly reduces the severity of the decline in GDP in an economic crisis situation. Moreover, the probability of crises occurring diminishes. These effects would occur with a lag of around two years. The release of the CCyB in crisis periods would mitigate the adverse effects on economic growth, both under the baseline scenario and at the extreme percentile. And, furthermore, its impact would be immediate. 15  In the case of the tools that fall on borrowers, their activation in financial cycle upturns would have similar effects to those of the CCyB. The main difference is that their effects are more immediate: i.e. around one year as opposed to the two years mentioned in the case of the CCyB. This suggests an order for the activation of the different instruments under normal circumstances: the tools that increase banks’ capital requirements should be activated first and, if the risks identified do not abate, the second instruments should then be activated. According to this same evidence, it is found that the release of the macroprudential instruments that fall on borrowers in crisis periods does not significantly impact GDP growth expectations or their distribution. This is perhaps due to the fact that, habitually, it is the banks themselves that restrict these lending standards in contractionary phases.

This is why all countries have institutions entrusted with ensuring financial stability is maintained and, in particular, with taking macroprudential policy decisions. In Spain’s case, and in relation to the banking system, it is the Banco de España —as part of the related European mechanisms— that performs these functions. Financial stability and macroprudential policy The financial system plays a key role in the economy – namely financial intermediation – which, moreover, affects all sectors: households, firms, government, financial firms themselves, etc. The markets and intermediary companies that comprise the financial system raise funds from economic agents with surpluses (savers) and distribute them among those that need to finance investment projects or consumption decisions (debtors). Hence the name financial intermediation, since the financial system acts as a bridge between savers and debtors. Hence, by “financial stability” we understand that situation in which the financial system is capable of withstanding shocks without disruption to the financial intermediation process on a sufficiently serious scale as to adversely affect real economic activity. Given the importance of this intermediation, our modern societies have equipped themselves with a regulatory and supervisory framework for banks and financial activities that seeks to ensure financial stability. In this respect, before the global financial crisis that struck the world economy more than a decade back, it was considered that, to achieve the objective of a sound, safe and stable financial system, it sufficed to ensure the solvency of each financial institution individually.