We need to see increased dynamism, particularly in those sectors which are not as directly affected by the current slowdown. Other measures are also necessary, such as liberalisation and deregulation policies, to improve competitiveness. Policies aimed at improving the human capital of our workers and increasing labour mobility should also be encouraged. Finally, a comment on fiscal policy. The current fiscal situation in Spain is sound, having ending 2007 with a budget surplus and reduced public debt. Indeed, let me recall that our public debt to GDP ratio, at 35%, is the lowest among the big EU countries. It is important to maintain this stance in the face of the current slowdown. Expansionary demand policies could prove counterproductive. We should avoid a deterioration of the budgetary situation beyond that implied by automatic stabilisers. Let me turn now to the financial sector. So far, the impact of the recent turbulence on financial stability in Spain has been limited. This is largely thanks to the actions of the banks themselves, who have not entered into the kinds of business that have been most directly affected. Spanish banks have demonstrated that you do not need to turn to the originate-todistribute model to become an efficient and profitable banking business. Plain vanilla, traditional business can be compatible with high returns on equity and efficiency. It also has the added value of implying greater stability. But I think that the Bank of Spain’s approach to supervision has also had a positive effect. Let me emphasise two key characteristics in this respect.

Furthermore, securitisation in Spain has mainly been used as a financing tool, to raise resources on the wholesale financing markets in order to meet the demand for loans from households and businesses. Since the element of credit risk transfer was limited, Spanish banks have had little incentive to issue overly complex financial instruments. Furthermore, we have always required capital to be held against liquidity enhancements to securitizations, which we consider may have significant credit risk. Let me take this opportunity to make a brief observation on the securitisation sector, which some have described as being in “dire straits”. I am sure that this sector will ultimately recover. But to do so, it must distinguish between traditional products that are sound,  2  BIS Review 70/2008  transparent, standard and easy-to-value, and “multi-layer” securitisations and complex structured products which are difficult to understand and assess. The good news is that the market is starting to differentiate between products. An example of this is the recent placement of several Spanish banks’ issues of simple covered bonds. In short, our recent experience shows that to be successful supervisors we need to combine an open attitude to financial innovation whilst keeping at the same time some good old fashioned supervisory suspicion towards it, especially when it entails overwhelming complexity or elements of regulatory arbitrage. The Spanish banking system has faced the recent turmoil from a well-capitalized, profitable and efficient position. However, there is no room for complacency.