Consequently, the effectiveness of the supervisory framework, which has doubtless been broadly strengthened by the changes to prudential regulation, depends on three aspects: firstly, the legal availability of a broad set of instruments through which requirements or restrictions may be imposed on banks; secondly, the ability to effectively influence management decisions and policy through formally non-binding actions, and finally the ability to ensure the accounts give a fair view of the bank’s financial situation. True, these elements have largely been present in the supervisory framework in place in Spain in recent years. The Banco de España has had a relatively extensive range of powers and has, in the exercise of its supervision, frequently used moral suasion and the issuance of recommendations, which banks have always followed. Further, it has been empowered to issue accounting rules affecting individual statements, which banks and audit firms have used as a frame of reference to properly complete with the consolidated statements that, generally, must adhere throughout the European Union to International Financial Reporting Standards (IFRSs). This supervisory approach is not identical to that followed in other jurisdictions. Within the Single Supervisory Mechanism (SSM), most authorities, including the ECB, have somewhat less extensive powers than the Banco de España. Moreover, in various European jurisdictions, the supervisory strategy adheres to a greater extent than in Spain to the strict  2  BIS central bankers’ speeches  use of the supervisory instruments formally recognised in the rules, with less dependence on recommendations or informal guidelines.

The harmonisation of these criteria would be highly desirable, especially in relation to the classification of exposures (an area in which the European Banking Authority has made notable progress in recent months) and, in particular, provisioning policy. It should be noted that, although the supervisor may adjust the capital requirements, imposing higher levels of capital does not sufficiently make up for the lack of adequate provisions. That is because the level of provisions always has direct and transparent implications for the profit or loss of the bank, while an increase in the minimum capital requirements via Pillar 2 is not usually transparent (as the Pillar 2 requirements are not public) and, in most cases, does not have any practical effect, insofar as the bank has a capital buffer that enables it to cover the new requirements. Accordingly, the supervisor should be concerned to promote the application of rigorous and uniform provisioning criteria involving the appropriate recognition on the balance sheet of the value of each exposure. Clearly, the formal publication of binding accounting criteria by the SSM may be contested, insofar as accounting does not form part of its competencies according to the EU regulation under which it was set up. At the same time, subjecting all banks active in the markets to IFRSs for consolidated accounts, certainly reduces its ability to exert an influence in this area. In short, the Spanish experience shows both the usefulness and feasibility of an involvement of the supervisor that is compatible with the law in force.