miguel fernandez ordonez : global rebalancing, asset prices and policy responses opening remarks by mr miguel fernandez ordonez, governor of the bank of spain, at the fifth high - level seminar of the eurosystem and latin american central banks, madrid, 10 december 2010. * * * good morning and welcome again. more than three years after the global financial system started to show serious signs of instability and two years after being on the verge of a global economic and financial meltdown, the world economy seems to have avoided that risk, backed by a strong and coordinated policy response. nevertheless, the strengthening has been uneven and the risk of economic and financial instability is still persistent and significant in some regions, like the euro area. indeed, it is hard to emphasise sufficiently the challenges ahead and how crucial the present juncture is for the future of our monetary union. on the contrary, latin american economies had learned the lessons from the severe financial and economic disruptions they experienced in the not so distant past, and the challenges they currently face are more similar to those that characterised the period of strong growth prior to the financial crisis. these very different sets of present circumstances make today ’ s exchange of mutual experiences and policy discussion particularly interesting. the title of today ’ s seminar was chosen almost a year ago, but it couldn ’ t be more timely : global rebalancing, asset prices and policy responses. from today ’ s perspective, these three issues refer – more or less directly – to the basic challenges that will have to be tackled to make the present uneven and unbalanced global recovery sustainable. with this in mind, i will organise my opening remarks around these three topics. first, i will deal with global rebalancing and how to achieve it in a context of diverging economic prospects for advanced and emerging market economies. second, i will address the recent behaviour of global financial flows and the challenges that emerging market economies face in this regard, including the risk of asset price overvaluation. and finally, i will touch briefly upon the need to enhance policy cooperation at the global level, especially as some economies progressively leave the worst of the crisis behind. let me move now to the first issue : global rebalancing and the world economic outlook. although global imbalances were considered one of the major risks facing the world economy before the crisis, such risks did not finally materialise in the expected form of a disorderly adjustment of exchange rates, with disruptive effects

granted to these institutions ( whose estimated cost as at 31. 12. 2013 was €6, 898 million at present value ) and the potential losses caused by the acquisition of shares in ncg and cx, provisionally evaluated at €754 million. 4. the new challenges for the sector and the authorities having reviewed the transformation of the spanish banking sector and its consequences in terms of costs for the public coffers, i have some thoughts i would like to add on the outlook for the sector. in particular, moreover, i wish to analyse the consequences, both for banks and public authorities, of the regulatory reforms agreed in response to the financial crisis. as i said earlier, the banking industry has been strengthened considerably in terms of asset quality, efficiency and solvency. this has been the result of the restructuring undertaken, the independent measures of the banks themselves, the regulatory changes made and the proper application of the demanding accounting rules laid down by the banco de espana. i trust this will all come to light in the assessment exercise which, as you know, is being conducted at the european level as part of the groundwork for the start - up of the single supervisory mechanism ( ssm ) in november this year. however, the challenges ahead are significant. the current environment, marked by stillweak macroeconomic conditions and very low interest rate levels, continues to exert pressure on banks ’ turnover and margins. while the recovery under way is being felt and there are discernible signs of credit stabilising and non - performing loans declining, it is likely that banks ’ recurring income – in line with developments in the rest of europe – will remain at still - low levels for some time. in addition, the new regulatory changes, both prudential and resolution policy - related, require not only the availability of ample capital levels but also, moreover, of other liabilities - side instruments able to be converted into capital if needed. taking advantage of the foreseeable improvement in economic conditions to raise the return on equity, while responding to new regulatory requirements, is a notable challenge for the financial system. note that this figure does not include the sale of shares of bankia by bfa ( 100 % - held by the frob ) in february – accounting for 7. 5 % of capital, at the price of €1. 51 per share – insofar as the liquidity obtained remains in the selling institution and is not therefore a refund of assistance until bfa ’