some that had until then been functioning reasonably well and that are fundamental to financing in the united states. among these, the deterioration in the commercial paper market was particularly serious. after the lehman brothers bankruptcy, some money market funds with exposure to its debt recorded losses, causing investors to redeem their holdings. the funds were forced to sell large amounts of securities to pay investors, causing the market for the commercial paper of non - financial firms to be seriously damaged too. - in europe, investors were sceptical about the liquidity position of entities reliant on very short - term financing, subjecting them to fierce selling pressure on the securities markets. in the united kingdom, what started as a problem for the largest mortgage lender ( hbos ), which had to be bailed out by lloyds tsb, spread to the whole banking sector, prompting the british government to launch an unprecedented intervention plan. - the belgian, netherlands and luxembourg authorities intervened in response to the problems at fortis, a bank whose share price had collapsed, and the belgian, luxembourg and french authorities had to take action to deal with the problems at dexia. - the icelandic government nationalised its three largest banks. - in germany the problems besetting the hypo real estate bank led the government to design a rescue plan for the entity, at the end of september, and they are currently providing support to bayern lb. - in the netherlands, the problems at ing required a large injection of capital from the government, and the french government also had to recapitalise france ’ s five main banks. in recent weeks the crisis has spread to many emerging countries, against a background of heightened risk aversion and the liquidation by investors of market positions subject to even minimal risk. the countries that have suffered most are those with significant current account deficits and financial systems strongly dependent on external financing. in europe, i should mention hungary, the baltic states, bulgaria, rumania, turkey and ukraine, as well as russia, which has also been affected by the fall in oil prices ; and in asia, pakistan. in latin america, although the starting position was in many cases better, the impact has been significant, for various reasons, in argentina, brazil, chile, colombia, mexico and peru. this risk aversion and heightened uncertainty has also been strongly apparent in the foreign exchange markets, which have seen a sharp rise in volatility and a strong appreciation of the yen and the dollar, the

have to live with a structure of higher financial costs, which will squeeze the net interest margin and, therefore, the capacity to generate revenues. this situation, common to all financial institutions at the international level, may be partly relieved in spain, insofar as a high percentage of the financing of spanish institutions is granted at a variable rate, which allows them to adjust interest rates more rapidly to the general market risk premium, helping to keep their interest rate spreads more stable. the second challenge is lower demand for credit both from households and businesses. the lower demand for credit is a natural response to a weaker economic climate than in previous years. however, this response will be larger in the case of those economic agents who, after years of very notable growth in their indebtedness, have begun a process of financial deleverage. for banks, this will mean a smaller volume of activity, that is to say, slower growth or even contraction of their business. in the past, banks responded to narrowing margins ( income less financial costs ) by increasing their volume of lending. however, this lever will not be available in the coming years, or at least not with the same strength, since lending can be expected to continue to decelerate, and to grow at below the economy ’ s nominal growth rate. also, a smaller volume of activity puts further pressure on results, since overheads cannot be spread across a larger volume of activity. accordingly, a commitment to rationalise costs must be a management priority for banks. the third and final challenge that will exert even more pressure on banks ’ income statements in the coming quarters also arises from the weakness of the economic situation. apart from the global deceleration, which primarily affects consumption and capital investment, we must not forget that the spanish economy is in the midst of adjustment in the property sector. this adjustment had already begun, gradually, before the summer of 2007, bringing the sector progressively into line with the change in the determinants of residential investment. this gradual rate of adjustment was altered by the international financial crisis, which established a climate of mistrust and uncertainty which, in turn, intensified the slowdown. the consequence for the banking sector has been a rapid growth in doubtful assets ratios since end - 2007. this growth has been recorded across - the - board, but especially in construction and property development. despite the counterweight provided by the existence of the general provision in spain and the very low starting levels of the doubtful assets ratio, this