the monetary and regulatory policy “ manual ” that central banks had been applying in tatters. pre - crisis, monetary policy in the advanced economies was essentially defined by inflation targets and a key instrument, the interest rate. in parallel, the goal of financial stability was chiefly addressed with microprudential regulation and supervision. this framework was broadly consistent with the goal of economic growth, given that the control of inflation was 3 / 7 estimated to be the best means for ensuring the economy drew closer to its potential growth. the crisis showed that this framework was no longer valid. the control of inflation, though it remains a necessary condition, is not sufficient to ensure growth ; and microprudential regulation was no longer effective, in or of itself, for guaranteeing financial stability. as a result, central banks have adapted their policies, which are now more complex in terms of objectives and instruments. monetary policy has had to face up to the problem of what is known as the “ zero bound ” on interest rates. basically, this is the situation that keynes coined the “ liquidity trap ” : interest rates close to zero cease to be an effective monetary policy instrument. this has led to the development of new instruments, so - called “ unconventional monetary policy ”, which mainly includes quantitative easing, private and public - sector financial asset purchases, and the explanation and signalling of the monetary policy to be applied in the future, namely “ forward guidance ”. the outcome has been a large increase – four - or fivefold – in the balance sheet of the main economies ’ central banks. in the case of the eurosystem, the ecb balance sheet accounted for 12 % of euro area gdp before the crisis and now stands at approximately 40 %, around €4. 4 trillion. supervisory policy, for its part, has had to face the challenge of macrofinancial instability in a context of highly interconnected markets at the global level. in this area, the response has been three - pronged. first, the strengthening of microprudential regulation, with the new basel iii accord, which includes greater capital requirements and a stricter framework for systemically important financial institutions. second, the development of a new instrument, macroprudential policy, which addresses systemic risk and the procyclical behaviour of the financial system as a whole. and, third, the greater international coordination of regulation, which is necessary given the reality of globalised financial markets. notable in terms of coordination has been the creation of

function and the attendant risks, including, for example, credit, cyber - security and privacy - protection risks. here we should strengthen our information and financial education policies. we are mindful at the banco de espana of the need to step up our efforts in this area. indeed, last week we approved a reform whereby, under our directorate general operations, markets and payment systems, a new associate directorate general financial innovation and market infrastructures was created to assume the competencies in these areas, centralising in this new structure the functions previously assigned to different units in the bank. this associate directorate general will have to face two families of problems. first, the questions that arise with the emergence of new agents and new operators in the financial markets, providing services that already existed ( but in a different way ), or services that did not exist, namely new types of financial services. as regards these new market players, two groups of problems are posed : on one hand, those referring to matters of competencies, i. e. all agents and operators should be subject to the same demands or regulations ; on the other, investors and consumers should be protected and alerted as to the new risks, just as they are in respect of the former operators and their products. the second family of matters which the new associate directorate general of the banco de espana must face concerns new technology and its application in financial markets, something which, in these times of continuous innovation, is obviously of great importance. thank you for your attention. 7 / 7