With hindsight, it was clearly a mistake to assume that financial markets had virtually unfettered capacity to improve risk management, and to have given excessive leeway to selfregulation. Further, the continuous expansion of spending in some advanced economies on the basis of growing private debt was a key component of the so-called “global imbalances”, about whose dangers many reports warned. But the detection of the problem did not suffice either to properly diagnose its potential scope or to act accordingly. Indeed, economic policies – and monetary and financial policies in particular – were, broadly speaking, clearly excessively lax during the upturn. Economic authorities now face the challenge of designing appropriate mechanisms to strengthen institutions in their economies and, once the crisis is behind us, to prevent such trends from recurring. This challenge firstly involves a far-reaching review of some of the basic principles underpinning financial market regulatory and supervisory policies in recent years. A new  BIS Review79/2009  1  balance must be struck between regulation and self-regulation, providing both financial institutions and other investors with appropriate incentives to curb the natural tendency of financial systems to accentuate business cycles. It will also be necessary to extend the purview of regulators and supervisors, avoiding the presence of “blind spots” in financial systems, and seeking a suitable response to the fact that markets and many market players are increasingly more global, both in terms of the geographical scope of their actions and of the products they trade.

Such a system is a strength of the Spanish economy which should be preserved so that, once the crisis is behind us, a sustainable growth path underpinned by the efficient allocation of all resources, including financial ones, may be resumed. This central role of a financial intermediation system explains why the State has, in addition to other support measures I have previously discussed, shown its readiness, like other governments, to provide capital to viable credit institutions that need it. These contributions, or any other assistance, must nevertheless be conditional upon the restructuring of the institutions that receive these public funds, so as to seek both the lowest cost for taxpayers and maximum efficiency. This approach squares fully with the common principles agreed upon in the international fora of which Spain is a member, and which have been backed expressly by Parliament with a broad consensus. Hopefully, these principles and this spirit of cooperation in matters relating to the stability and resilience of our financial system may soon result in a series of legal provisions that reinforce the ability to deal with potential problems, in line with the tradition of the Banco de España and in keeping with the specific nature of the tensions we are currently experiencing. Cooperation, in this case among international authorities, will also be necessary to further the design of the new, globally applicable guiding principles for the working of markets and financial – banking and non-banking alike – intermediaries. Earlier I referred briefly to the significant challenges emerging in this area.