Taking advantage of hindsight, I would like to stress two chief lessons learned from this twenty-year process of modernisation. The first is that regulator and banks have formed a “joint partnership”, prompting a fruitful “virtuous cycle” and matching goals and efforts in order to attain efficiency and soundness. Close communication and constant exchanges of views are the principles currently governing this relationship. The second lesson is that, at the end of the day, there has been no trade-off between profitability and soundness: the competitive capacity of Spanish banks has not been dented by supervisory policies. These policies have been oriented towards enhancing the solvency  BIS Review 56/2008  3  and internal governance of banks, and to increasing the confidence of the public and the markets in the banking sector. However, this transformation has not been painless. It has to be recalled that the Spanish financial system had to overcome a deep-seated crisis in the mid-seventies to early eighties. By the end of the 70s, our banking system was weak, closed, corporatist, old-fashioned and highly regulated. Such regulation affected many of their operating areas, curtailing competitiveness. Interest rates were set administratively and credit institutions were obliged to meet investment ratios to finance certain economic sectors with maximum interest rates. This environment made for weak structures with no incentive to compete and no professional teams or systems to accurately identify and manage risk. At that time a range of new banks were allowed to set up.

But there are still issues and concerns about the real extent of changes in lending standards and the potential problems that rapid credit growth might pose if the global economy were to turn to a slower gear. Similarly, Asian banking systems remain relatively close to the participation of foreign banking, as compared to other emerging market regions, a development which may be foregoing important benefits in terms of modernization and competition. All in all, I would conclude that the financial sector in Asia is still lagging behind when compared to other very dynamic and exemplary sectors in the region, such as certain industries, education and technology. I believe that this imbalance may eventually become a drag for the consolidation of a sustained growth path. Therefore, the development of the financial system is of central importance for the long-term growth perspectives. Under these circumstances, banking reform and restructuring is an important challenge that many Asian economies are inclined to face. Let me tell you that in Spain we know well this challenge and its rewards. The highly successful performance of the Spanish economy over the past 20 years cannot be explained without taking into account the significant contribution by the financial sector and, in particular, by the banking system. In turn, the transformation – and improvement – of our banking system in this period has been outstanding. This is evidenced, for example, by its favourable performance in terms of profitability, efficiency and solvency, both on an absolute basis and in comparison with other countries.