, 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

general, positive. the capital needs arising under the adverse scenario are moderate at the aggregate level, although there is considerable heterogeneity across banks. specifically, the reduction in the cet1 capital ratio for large institutions with a significant international presence is 0. 4 pp, standing at 2. 7 pp for other ssm - supervised banks and at 0. 6 pp for less significant institutions. the difference obtained between internationally active institutions and other institutions supervised by the ssm shows the significance of geographical diversification in absorbing shocks. the lower decline in the capital of the less significant institutions is largely due to their lower credit risk and the lesser weight of their exposure to the real estate sector, i. e. to their better asset quality. the results obtained are generally more favourable than last year. this is because banks have made use of the past year to lessen their exposure to changes in the prices of certain assets, such as foreclosed assets. specifically, banks have offloaded considerable packages of foreclosed assets during 2018 and in 2019 to date. turning once more to the main sources of risk to financial stability, the last such source i wish to mention relates to financial institutions ’ operational risk. operational risk accounts for 9. 3 % of spanish deposit institutions ’ volume of risk - weighted assets, slightly below the european average ( 10. 5 % ). in any event, the deterioration of solvency associated with an operational risk event may be high based on past experience. indeed, for european banks affected by big operational events, this deterioration has stood at over 1. 25 pp of cet1 in the past five years, with a rise to 2. 1 pp in 2018. in spain ’ s case, the potential materialisation of costs associated with legal risks continues to contribute to deposit institutions ’ operational risk. the processes linked to past litigation such as that of the floor clauses have had an estimated cost for the sector 7 / 10 of over €2. 2 billion to june 2019. moreover, there are other significant legal processes still pending resolution. in any event, legal risk and certain other factors relating to banks ’ conduct have had a considerable impact on the reputation of the banking sector, and not only in spain. it is worth recalling here that reputation and customer confidence are fundamental to the banking business. therefore, institutions should strive to reverse this tendency by providing their customers with financial products and services suited to their needs and capabilities, and they should likewise supply the relevant information clearly and transparently.