to reduce the frequency and intensity of any future crises will further change the rules governing consumer banking. and as bankers you will shift the competitive environment as you modify your business models to adjust to regulatory changes and your recent loss experience. in my remarks today, i will begin by discussing some of the key elements of the crisis that led us to where we are today. then i will talk about new regulations governing consumer financial products and the current financial condition of the consumer, with some thoughts about the resulting implications for retail banking. i will conclude with some suggestions for principles to guide consumer banking going forward. reflections on the crisis the recent crisis in our mortgage finance system and capital markets was severe. it plunged our economy into a level of stress second only to the great depression of the 1930s. the results were devastating for investors, financial institutions, businesses, and consumers from wall street to main street. as a first responder, the fed used a wide range of tools to fight the crisis in a direct and urgent manner, including lowering interest rates ; maintaining a steady flow of dollars to meet demand abroad ; providing liquidity to sound institutions to support faltering financial markets ; and providing emergency loans to specific, troubled institutions whose failures would have had disastrous consequences for the financial system and the broad economy. the pervasiveness of the panic required that the federal reserve act swiftly, responsibly, and effectively. if we had been unable or unwilling to do so, i believe that today the economic and financial situation would be much worse. 1 our actions have hardly come without scrutiny or criticism, of course. while some hailed the forceful steps taken by the federal reserve in the fall of 2008 to help prevent the apocalyptic scenario that we all believed possible, a vocal contingent of critics questioned the federal reserve ’ s decisions and the degree to which individual financial institutions benefitted from our actions, especially the so - called bailout for insurance company american international group ( aig ). to help you understand our actions, let me put you into the moment when we decided to provide liquidity to aig. the government had already put fannie mae and freddie mac into conservatorship to preserve the mortgage market. lehman had just failed, and we were getting the initial reports of the fallout, like reports of battlefield casualties, that market after market was damaged or frozen. panic was so heavy in the markets that it was almost a physical presence. i kept having this image in my head of the panic being like the monster

considering the medium and long - term challenge posed by population ageing ( see chart 13 ). the latest estimates point to a significant increase in public expenditure on pensions, healthcare and long - term care deriving from the surge in the dependency ratio, which even in the most optimistic demographic projections is set to rise from 25 % at present to over 50 % by 2050. in the case of the pensions system, the 2011 and 2013 reforms included some adjustments that managed to significantly offset the effect of the expected increase in the dependency ratio in the long term. however, the 2018 budget and the budget for 2019 being discussed here today, mark an easing of the entry into force of those mechanisms, as they delay the application of the sustainability factor until 2023 and, in particular, they entail a return to the system of annual revaluation of pensions in accordance with the cpi. according to banco de espana calculations, the permanent reinstatement of this indexation system would entail an additional increase in expenditure of more than 3 pp of gdp in 2050. in consequence, in order to ensure the financial sustainability of the public pensions system, additional measures will be required on the revenue or the expenditure side, or on both sides, to offset that extra burden. in short, i must stress that it is, in this respect, essential to define, in accordance with social preferences, the replacement rates that the pensions system should seek to ensure, so as to subsequently adjust the level of revenue accordingly and thus ensure the banco de espana testimony by the governor of the banco de espana before parliament in relation to the draft state and social security budget for 2019 high public debt chart 12 public debt and gdp growth ( a ) net iip. sectoral breakdown % of gdp real gdp growth - 20 - 40 - 60 - 80 - 100 banco de espana general government private sector total q3 debt - to - gdp ratio sources : eurostat, oecd and banco de espana. a regression with average values for the eu and oecd countries in the 1995 - 2015 period. the challenge of population ageing chart 13 non - financial balance of the social security system dependency ratio % of over - 65s relative to population aged 15 - 64 % of gdp 2. 0 1. 5 1. 0 0. 5 0. 0 - 0. 5 - 1. 0 - 1. 5 - 2. 0 80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10 12 14 16 70 75 80