First, the strengthening of the capital position of banks, following the conclusion of the cleaning-up, recapitalisation and restructuring of the 2  BIS central bankers’ speeches  financial system, is contributing to enhancing their capacity to finance the economy. The Comprehensive Assessment carried out last year at the European level also contributed notably to restoring investors’ confidence in the Spanish banking industry. The increasing reintegration of European financial markets since 2013, stemming from various actions taken both at the national and European level, does also facilitate the normalisation of the economy´s financial flows. These initiatives include the adoption by the Eurosystem of a number of bold, unconventional monetary policy measures, including the introduction of new long-term operations linked to new lending (the so called TLTROs) and the purchase of public and private sector securities. The ongoing improvements to euro area governance arrangements are also operating in the right direction, helping stabilise European financial markets and reducing their fragmentation. One key development in this field is the Banking Union, which, though still incomplete, marks an unprecedented step towards a genuine European common mechanism of rules and procedures for supervising and resolving banks and protecting their depositors. All in all, the recent normalisation in European financial markets has contributed to a significant easing in financing conditions in those jurisdictions that were previously under higher macrofinancial pressure, including Spain. As a result, the cost of lending in these countries has tended to converge gradually to the lower levels observed in the core euro area.

How this policy should actually be carried out in practice is a complicated issue and I believe that the IMF can play an important role in this context too. The financial crisis revealed major problems The era in which we were said to be living in the best of all possible worlds, popularly known as “The Great Moderation”, came to a disastrous end in 2007. Following a long period of steady growth and stable low inflation, we had been lulled into the belief that this would never change. We believed that the financial markets were excellent at converting savings to loans and distributing risks so that they were taken by agents who both wanted and were able to  1  The Nordic-Baltic constituency consists of Denmark, Estonia, Finland, Iceland, Latvia, Lithuania, Norway and Sweden. BIS central bankers’ speeches  1  bear them. The risks that were mainly discussed were the imbalances in the global economy in the form of countries with large current account surpluses and those with corresponding deficits. Those who raised questions about the stability of the global financial system and the risks relating to a rapid expansion of credit found it difficult to be heard in this situation. The financial crisis brought into focus the inability of the international community to prevent and manage crises in the global financial system. There were several problems. First, there was a lack of knowledge about the links and the contagion risks in the financial system.