In the face of this exceptional conjuncture, the monetary authorities and the governments of the main developed economies have acted in coordination to adopt a set of far-reaching measures commensurate with the scale of the financial crisis facing us. Although we cannot expect that these measures will immediately correct the difficult economic situation at hand, but rather that the process of adjustment will be slow and laborious, they should however help financial institutions to resume normal operations and restore confidence to the financial markets. How does this exceptionally difficult situation affect the Spanish banking system? What means are available to those of us in Spain who, in our different areas of responsibility, participate in the financial system? During my talk I will try to answer these two questions, but allow me first to dedicate a few minutes to clarifying where Spain stands in the difficult situation besetting the international financial system. International context The financial crisis under way from summer 2007 to date can be divided into three phases. The first phase ran from August 2007 to the beginning of last September and was characterised by the impact of the financial turmoil on the balance sheet and income statements of numerous financial institutions at international level. This turmoil originated in the subprime mortgage segment, although it progressively spread to lower-risk financial statements. One of the business segments which had grown up in the US mortgage market was characterised by the extension of mortgages to individuals or households with scant ability to meet their payment commitments.

To try to explain why Spanish institutions have passed the tough test posed by this unprecedented crisis, I shall use the phrase recently used by Jacob Frenkel to summarise, humorously and clearly, the problems currently affecting many American and European banks. What has happened, according to Jacob, is that in the balance sheets of these institutions “on the right side there’s nothing left, and on the left side there’s nothing right”. In other words, on the assets side everything is damaged, while on the liabilities side, because some banks have financed themselves at such short maturities, the financing has vanished into thin air. This simplification of reality is highly illustrative of the situation that many international banks have got themselves into, but it also explains why the Spanish banking system has escaped the crisis. On the liabilities side, things are different in the Spanish banking sector. Admittedly, Spanish banks have been very active in seeking financing on the international wholesale markets. But they have focused on the longer maturities. This has given them greater peace of mind with regard to the structure of their liabilities, despite the fact that the cost has been higher than it would have been if they had made more use of financing at the shortest maturities. Spanish banks’ recourse to wholesale markets has taken the form of various instruments, including asset-backed securities. However, Spanish securitisation bears little resemblance to that which is currently proving highly problematic. First, because of the high quality of the securitised portfolios.