riskmanagement techniques, should be underpinned by a suitable policy for capital. it does not suffice to have a sufficient and even comfortable overall volume of capital : what is needed is a strategy for capital that takes into account factors such as the permanence and quality of capital, market accessibility and the balance between shareholder remuneration and the institution ’ s capitalisation. too often, formulas for increasing capital through the use of subordinated debt or hybrid instruments to finance business expansion are resorted to, while at the same time the build - up in reserves from retained earnings slows. it is crucial for banking institutions to evaluate decisions on the level and composition of capital from a strategic and medium - term perspective. these thoughts on the challenges to be faced would be incomplete without addressing the corporate governance of credit institutions. the banco de espana has a particular interest in this area as it considers it a basis for sound risk - management. it is duly assigning additional resources and focusing on the matter more closely. far from being a passing fad, improving corporate governance should receive priority attention from banks. not only because of the factors habitually cited, but also because the new environment of transparency associated with ias and basel ii will simultaneously involve greater market scrutiny, a greater capacity for action by bank managers and, in sum, heightened responsibility for them. my final comments relate to the internal changes at the banco de espana. the year 2002 has also been important in this respect in view of the reforms initiated, which will continue in the coming years. last year the banco de espana successfully met the logistical challenge of substituting euro for pesetas. while the intensity of this process has diminished, it has nevertheless continued this year. i should like to reiterate my gratitude to the staff at the banco de espana for their efforts and dedication, which have been on a par with the historic significance of this event. likewise, last year saw the start of an ambitious plan to rationalise our network of branches, located in each and every spanish provincial capital. the restructuring involves acknowledging what is a fact : namely, that many of the services provided by the branches do not - owing mainly to new technologiesrequire a physical presence. and those requiring physical presence can be more efficiently organised through a smaller group of better - equipped logistical centres. following negotiations with employee representatives, the restructuring entails the progressive closure of 30 branches over three years. the first ten have already been closed, and those that are to

macroeconomic data and indicators of financial system soundness. such data will facilitate assessment of conditions by domestic authorities, by market participants, and international institutions. improved arrangements for surveillance, for example through peer reviews as agreed at manila, can help alert domestic authorities to danger signals that may not be visible to them. i have already referred to the core principles of banking supervision. these will need to be elaborated in the coming months and years, and their implementation carefully monitored. where necessary, countries that need help to come up to international best practice should receive technical assistance. in addition to core principles of banking supervision, standards will be needed in other areas, such as accounting and disclosure practices for borrowers and lenders. ways will need to be found to codify prudent behaviour in managing international borrowing and lending. in all of this, the more advanced financial centres will have to give a lead. in my judgement, it would be unacceptable for the industrialised countries to call for the adoption of standards in the emerging markets that they are not prepared to adopt themselves. concerning crisis resolution, one thing that is clear is that ever - larger official financing packages are not the answer. the key to successful crisis resolution is to restore the confidence of the private sector, without provoking moral hazard. this means finding ways in which the private sector is involved in crisis resolution from the start. the ideal is for private creditors to form committees that work out mutually agreed rescheduling packages with borrowers facing liquidity difficulties, as indeed happens in national jurisdictions. for the cases ( hopefully small in number ) where this does not work, ways will have to be sought that replicate at the international level the impact of insolvency procedures at the national level. in any event, the private sector cannot be allowed to simply await rescue by the international community. concluding remarks i have tried to offer some preliminary thoughts on the lessons that we can draw from the events in asia during the recent eight months. you and others are engaged in reviews from which we shall undoubtedly learn more. but a number of issues have emerged that need to be addressed if we are to avoid similar incidents in future. i have argued that expanded capital flows have not, by themselves, been the root source of the current crisis. however, to harvest the benefits they bring, action is required by domestic authorities and the international community in a number of areas. first and foremost, a premium needs to be placed on sustainable and responsive macroeconomic policies. in this regard,