Reducing it will necessarily involve raising the attractiveness of permanent hiring for firms. Finally, let us turn to the banking sector. Major challenges, in many cases shared with other European banking systems, remain outstanding, despite the progress made in recent years. For one thing, the Spanish banking sector should speed up the reduction of its non-earning assets, since these not only bear down on its profitability but also on its capacity to allocate  9/18  resources efficiently. This aspect is particularly relevant in Spain’s case, where the recourse by smaller-sized firms to external funding is mainly through bank loans. Next, in addition to enhancing the quality of their assets, Spanish institutions should strengthen their capital and the liabilities susceptible to be used in the event of bail-ins in order to face on the best footing the regulatory challenges still pending. As in other countries, the new technological environment poses a challenge. But it is also an opportunity for the financial system, which the Spanish banking sector should harness. Finally, financial institutions should seek to enhance their reputation. This challenge should not be neglected if they are to successfully tackle an environment like the current one, which is becoming more competitive as new agents emerge (e.g. the so-called FinTech). In an economy like Spain’s, where the banking sector continues to mediate most financial flows, overcoming these challenges is crucial if deposit institutions are to continue contributing to economic growth.

16/18  Regulatory framework I would now like to focus on three regulatory challenges with the potential to distort our country’s current regulatory framework: the enormous disparity of regulations at the municipal and regional levels; regulations that depend on firm-size; and regulations that artificially distort the costs of different-sized firms. Firstly, the disparity of regulations at the municipal and regional levels. The OECD published a report in 2015 showing the enormous dispersion of procedures needed in 19 Spanish cities in order, for example, to start a company, to apply for a building permit or to initiate a legal claim. In such a setting, the formalities needed to undertake investment projects proliferate, which hampers building up the business in alternative locations. This may be particularly relevant for certain sectors, such as professional, scientific and technical activities, training and wholesale and retail trade. To correct these distortions, the Law to Ensure Market Unity was approved. This legislation only allows limits on an operator’s freedom of establishment and movement when this is warranted by pressing reasons that are proportionate and in the general interest. Moreover, the legislation places at operators’ disposal claim mechanisms under administrative law that are swifter, in principle, than the previous ordinary procedures. Benefits have clearly arisen from the defence mechanisms for agents fomented by this Law. And thanks to the sectoral conferences being held as a result of the legislation, coordination between regions and municipalities is increasing so as to identify and, as far as possible, adopt best practices at the sectoral level.