Fernando Restoy: Forging a new financial system – reforms outstanding and ongoing Opening address by Mr Fernando Restoy, Deputy Governor of the Bank of Spain, at a conference at Complutense University of Madrid, Madrid, 27 October 2014. *  *  *  Let me first thank the organisers, in particular professor Carmen Alonso Ledesma, a fellow sufferer on the Banco de España Governing Council, for their kind invitation to participate in this conference. Looking at the programme, the topics to be discussed in the various papers and roundtables, and the expertise of the speakers, I harbour no doubts that this conference will prove enormously useful in enriching the knowledge of all those present about the reforms undertaken and the challenges still pending for the financial system. A good number of these reforms and challenges are linked to the flaws identified in the functioning of the sector as a result of the international financial crisis that broke in 2007. In particular, the crisis has highlighted considerable structural shortcomings – which led to an incorrect evaluation and management of key risks by financial institutions – and major limitations to the prevailing crisis-prevention and management systems. In the euro area, as you know, the perverse link between the vulnerability of the credit sector and the weakness of public finances precipitated an institutional crisis which jeopardised the very continuity of the Monetary Union. The consequences of the financial crisis have been very adverse.

Source: IM F  GDP growth in the USA Annual percentage change 5  5  4  4  3  3  2  2  1  1  0  0  -1  -1  -2  -2  -3  -3 00  01  02  03  04  05  06  07  08  09  10  11  12  Sources: IMF and the Riksbank  BIS Review 109/2010  9  Purchasing managers’ index Index figure above 50 indicates growth 65  65  60  60  55  55  50  50  45  45  40  40 Euro area  35  35  USA  30  30 00  01  02  03  04  05  06  07  08  09  10  Sources: Institute for Supply M anagement, M arkit Economics and Swedbank  Inflation in the USA Annual percentage change 6  6  5  5  4  4  3  3  2  2  1  1  0  0 -1  -1 CPI USA  -2  -2  CPI excluding energy and food USA  -3  -3 00  01  02  03  04  05  06  07  08  09  10  11  Source: Bureau of Labor Statistics  Central banks’ balance sheets Per cent of GDP 30  30 The Riksbank  25  20  25  ECB Federal reserve  20  15  15  10  10  5  5  0 jan-07  0 jul-07  jan-08  jul-08  jan-09  jul-09  jan-10  jul-10  Sources: Bureau of Economic Analysis, Eurostat, Statistics Sweden and the respective central banks  10  BIS Review 109/2010  GDP growth in the euro area Annual percentage change 5  5  4  4  3  3  2  2  1  1  0  0  -1  -1  -2  -2  -3  -3  -4  -4 -5  -5 00  01  02  03  04  05  06  07  08  09  10  11  12  Sources: IMF and the Riksbank  Inflation in the euro area Annual percentage change 5  5 HICP total HIKP excluding energy and unprocessed food  4  4  3  3  2  2  1  1  0  0  -1  -1 00  01  02  03  04  05  06  07  08  09  10  11  Source: Eurostat  Public finances in the OECD-area Per cent of GDP 2  100 Government net lending General government gross financial liabilities  0  95  -2  90  -4  85  -6  80  -8  75  -10  70 00  01  02  03  04  05  06  07  08  09  10  Source: OECD  BIS Review 109/2010  11  Interest rate differential against Germany Percentage points 10  10  Greece Ireland  8  8  Italy Portugal Spain  6  6  4  4  2  2  0  0  -2 Jan-07  -2 Jul-07  Jan-08  Jul-08  Jan-09  Jul-09  Jan-10  Note.