, compared with other single supervisory mechanism ( ssm ) banks and countries. in any event, precisely to limit variability between weightings obtained through the irb approach and the standard approach, the final phase of the basel iii reform includes the socalled output floor. here, the density of the risk - weighted assets of institutions ’ aggregate portfolio may not be lower than 72. 5 % of that obtained applying the standard approach. accordingly, this constraint should affect spanish banks to a lesser extent. however, the set of reforms pending implementation will foreseeably have some impact on banks ’ capital requirements in the coming years. in this respect, the bigger the capital buffers spanish institutions have, the greater their capacity to cushion the impact of the full adoption of the reforms and their pass - through to european regulations. beyond the need for compliance with regulatory requirements, the level of solvency is particularly significant in a financially globalised world. thus, there is empirical evidence that the cost of financing with instruments convertible into capital falls significantly the greater 6 / 10 banks ’ level of solvency. and we should remember that banks, owing to mrel requirements, will have to issue a lot of these instruments in the coming years, a task that has been made easier in recent months by the ecb ’ s monetary policy. in addition, there is evidence that banks with higher solvency levels are those best adapted to uphold their profitability against a background of negative interest rates. one way of evaluating the suitability of banks ’ solvency levels involves subjecting them to stress tests. the banco de espana performs such exercises annually on all spanish institutions. to do so it takes as a starting point highly granular data from the balance sheets of banks at the close of the previous year and defines a baseline macroeconomic scenario which coincides with the forecasts of the banco de espana available at the time the exercises are performed. it then takes another, stressed scenario, which seeks to reflect the effect of the risks identified previously materialising. the difference between both scenarios reflects the degree of stress of the exercise which, in the test this year, is slightly higher than that of the previous year owing to the intensification of the risks mentioned in the first part of my address. while the results of these tests will be published in greater detail in the forthcoming financial stability report, allow me to offer you in advance some of the main conclusions. the results obtained in relation to the resilience of spanish banks as a whole are, in

bankers, bank supervisors, and policymakers, we should strive to work together to ensure that those risk - management processes are sufficiently robust and that they have been tested to ensure their effectiveness. a final word may be in order after so much discussion of the need to adopt more - sophisticated risk management at community banks. you have no doubt heard about the changes in capital processes being discussed in basel by the supervisors of the major industrial countries. these changes are being proposed mainly for the large, complex, internationally active banking organizations of the world, whose operations and business needs have developed beyond the intended reach of the current capital requirements. however, the capital and regulatory structures being developed in basel will not affect the rules under which most, if not all, of the banks in this room will operate. indeed, for most banks in this country, basel ii will have virtually no effect. i want to thank the north carolina bankers ’ association for the opportunity to speak to you today.