at countering these pressures. i would like to briefly describe the developments in the main income statement captions and then identify the courses of action available. the net interest margin performed well in 2008 and its growth of around 14 % over the same period of the previous year was higher than that of activity. this favourable performance, despite representing a slowdown with respect to other years, reflects highly recurrent core income from banking activity, a characteristic of the spanish banking system. also, net interest margin growth was favoured by the high percentage of lending granted at variable rates, which allowed institutions to progressively raise interest rates in the first half of 2008. however, financial costs also grew strongly, and may continue to do so in the future. the higher pressure from funding costs has three sources. first, the notable increase in risk premia, in a very sharp pendulum swing, has surely over - corrected the abnormally low levels reached in summer 2007, so these levels will foreseeably not be regained when conditions in the international financial markets return to normal. second, the persistent difficulties in obtaining funding on the wholesale markets, which are also unlikely to regain the rate of expansion seen in the past, have led to notably heightened competition for new deposits, particularly time deposits, the cost of which is higher than that of other alternative sources of funding. lastly, it should be recalled that in a setting of low interest rates, the cost of bank deposits has a floor, and this also contributes to the narrowing of margins. for these reasons, the net interest margin will foreseeably come under downward pressure in an environment in which it is not, and will not conceivably be, offset by increases in the volume of activity. fees and commissions fell slightly in absolute terms. firstly, analysis of the various components of fee and commission income shows that those directly related to more traditional banking activity have, in line with their lower rate of expansion, grown more moderately. secondly, spanish deposit institutions have been marketing non - bank financial products and securities services to their customers, which has generated significant fees and commissions. however, the data for december 2008 reflect a fall in fee and commission income from business of this type. this is because the difficulties besetting financial markets have made these products less attractive to customers and because institutions have changed their product mix. it thus seems that their customer sales focus has moved from fee - generating products which they themselves market, such as pension and investment funds, certain insurance products, etc. towards deposits.

second stage. supervisors do not need to wait for the formal adoption of basel ii to start introducing or using the principles of the three pillars. on the contrary, incorporating these principles is excellent preparation for adopting basel ii in the future. for example, supervisors might choose to move towards a more risk - based approach to supervision, developing skills in assessing the quality of a bank ’ s risk management and its ability to assess risk exposures. at the same time, banks could be reminded of their responsibility to develop their own processes for evaluating their capital needs and a strategy for maintaining their capital levels, consistent with the principles of pillar 2. with regard to the principles of market discipline in pillar 3, supervisors may wish to focus initially on ensuring a baseline level of disclosures across all banks. this might include discussing with banks, investors, and other users of financial information their information needs and the tools available so that supervisors can tailor requirements accordingly. in my view, these two preliminary stages provide an excellent preparation for the “ final ” stage of moving to basel ii. with a strong foundation in place, supervisors can then select the alternatives within basel ii that are most appropriate for their own circumstances. in addition to the steps i have outlined for supervisors, there is also a wider set of preconditions that we as central bankers can help to promote, including appropriate macroeconomic policies which are consistent and sustainable over time. all these considerations allow us to underline the notion that the achievement of financial stability must be based on a broad range of tools which we should all seek to strengthen. i don ’ t want to play down the challenge of achieving a coherent approach to financial stability that fosters financial innovation, promotes a level playing field and ensures that the banking system can remain resilient in the face of internal and external shocks. nevertheless, i believe that the effective implementation of basel ii will contribute to the proper functioning of the economy under a wide range of circumstances. conclusion to conclude, i think that basel ii recognises the importance of a combination of micro and macro factors for achieving greater financial stability. furthermore, i would say that basel ii incorporates some of the key basic principles that are also built in modern approaches to monetary policy : a flexible and forward - looking approach, anticipatory rather than reactive behaviour to risk, and the need to take into account market views. st looking into the future, we must direct our resources to ensure that banking supervision in the 21 century is more dynamic, more preventive, more flexible