) of the main economies in terms of compliance. in this respect, peer review exercises have begun and a major effort is being made to identify those areas in which the regulatory framework does not sufficiently recognise risks, placing particular emphasis on those institutions, instruments and markets which are not currently regulated or supervised. in addition to all these efforts in the field of regulation, work is ongoing to set in place more effective and uniform microprudential supervision of financial institutions. the financial crisis has revealed major supervisory failings in certain jurisdictions. in these cases supervision did not adapt sufficiently to the increasingly global nature of financial activities and it was not as intensive as would have been necessary. as a result, certain banks ultimately built up excessive risks, prompting public interventions with a high cost for taxpayers. this was due in part to excessively lax supervisory standards, which led to insufficient monitoring of institutions under inspection and to the underutilisation of the information available to supervisors, and which allowed the excessive growth of the “ shadow banking system ”. work is now in progress to define and standardise ways in which material information on transnational institutions can be exchanged through so - called colleges of supervisors, which group together the supervisors of the countries where these institutions have a significant volume of activity. substantial headway has been made in a short time and improved supervisory cooperation at international level and at european level ( with the creation of new european supervisory authorities ) will unquestionably enable more effective action. i would like to emphasise here another dimension which the banco de espana considers crucial, namely the improvement of national supervision. the first step in achieving effective international supervision is to ensure high quality national supervision, not only of large institutions, but of the whole system, since systemic risk may flare up due to a mere contagion effect. the second step is to foster the convergence of a majority of countries towards uniform and higher - quality supervisory standards. in this respect, work is commencing on a review of the various national supervisory models with a view to developing principles based on sound supervisory practices. lastly, i would like to emphasise that a key issue in discussions on changes in regulation and supervision is the search for ways to mitigate the problem of moral hazard associated with so - called systemic institutions. some of the more perverse consequences of the crisis have manifested themselves in these institutions, i. e. those which, owing to their size, their inter - connectedness or the difficulty of replacement of their business areas, are too “ big ” to

miguel fernandez ordonez : the restructuring of the financial system opening speech by mr miguel fernandez ordonez, governor of the bank of spain, at the xvii meeting on the financial sector / deloitte - abc, madrid, 13 april 2010. * * * good morning. let me first thank abc and deloitte for the opportunity to address such a select audience as that gathered here today. i have tried to explain from the outset of the crisis that, although it may have compounded the main problems besetting our economy, these are specifically spanish problems. accordingly, their solution unavoidably involves adopting domestic measures without counting on an improvement in the external environment to resolve them for us. among these problems is the necessary restructuring of the spanish banking system. this sector, which grew in parallel with the extraordinary real estate expansion of the past 15 years, now shows overcapacity and insufficient capitalisation in the case of certain institutions, meaning re - sizing and appropriate restructuring are needed. last year, in this same forum, i referred to the need for banks to be aware of the situation facing them and to set about the task at hand. today, with few exceptions, i believe they are doing their homework. regarding the restructuring of the financial system, the government and parliament too have done what they had to, and correctly so in my view. on one hand, formulas such as nationalisations, “ bad banks ” and capital injections without requiring that capacity be reduced have been rejected. such formulas were probably unavoidable in countries that have seen the bulk of their banking systems collapse, but are absolutely inappropriate for spain ’ s circumstances, where most of the sector is essentially healthy. on the other, the capacity of the banco de espana has been reinforced to act effectively when it is necessary to take control of banks and, in turn, an appropriate framework has been set in place so that those banks that so require may access the funds needed to restructure. even if still currently viable, they are encouraged in this way to go ahead with restructuring, which allows them to be prepared to lend without problems once the recovery arrives and the current declining pattern of the demand for credit turns around. these measures – implemented in the royal decree law creating the frob ( fund for the orderly restructuring of banks ) – have been adopted with a broad parliamentary consensus, enjoying the support of the two main parties, in a similar fashion to the consensus behind the swift response of our authorities