the activities of unrelated entities to be totally separated. the proposal currently under discussion in europe would permit the creation of financially independent subsidiaries to accommodate the activity of investment within a group also authorised to engage in traditional commercial banking. we are therefore confronted with the need to achieve closer international coordination to ensure the consistency of the reforms under way in the various jurisdictions. otherwise the cross - jurisdictional inconsistencies may encourage regulatory arbitrage which would reduce the effectiveness of the reforms adopted and put at risk the sought - after simplification of banking. in any event, the implementation of measures of this type affecting the specialisation of banking activity should be accompanied by an appropriate cost - benefit analysis. in this respect, it should be kept in mind that the crisis has not demonstrated the superiority of any specific model and that, by contrast, it has witnessed the collapse of all manner of institutions, whether they be specialised in traditional business, in investment banking or in a combination of the two. moreover, given that the introduction of restrictions on banking activity means forgoing the potential benefits of diversification, it is essential to ensure that these are smaller than the risk of combining traditional banking and own - account investment activities, even after the entry into force of solvency regulations which strengthen and step up prudential controls. finally, it is necessary to assess as precisely as possible the impact structural measures may have on the location of risk outside the regulated sector and on the liquidity and efficiency of securities markets. more generally, we still lack an overall analysis of the diverse regulatory changes envisaged in the three areas in question, of their internal consistency and of their combined impact on the financial system and on the economy in general. for example, at the limit it could be argued that structural measures ( perhaps those having the greatest impact on the business strategy of the main banks ) are the least necessary if we are confident that the combination of the new solvency requirements and the reform of resolution regimes will really minimise the government support required to protect deposits. furthermore, although the soundness and solvency of banks tend to strengthen their capacity to grant credit, it is true that the combined effect of all the measures will ( by their very nature ) tend to reduce the profitability of banking and banks ’ ability to channel savings to business activities involving risk. further evidence on the quantitative importance of this effect would be useful for assessing the key parameters of each measure. effects in spain against this background, how do the regulatory changes affect the spanish banking

luis m linde : the regulatory responses to the crisis speech by mr luis m linde, governor of the bank of spain, at the fundacion de estudios financieros, madrid, 22 may 2014. * * * good morning and many thanks to the fundacion de estudios financieros for your kind invitation. let me start by recalling that just three years ago i contributed to another book of the fundacion, on the international financial crisis, as we then saw it. as governor of the banco de espana and erstwhile collaborator of the fundacion, it is a pleasure for me to participate in this presentation. knowing the authors ’ profile, i have no doubt the book will make us reflect on how to enhance our financial culture and also on the much - needed recovery, following the crisis of confidence in the financial sector. * * * * * * * my intention today is not to talk once more about the crisis and its causes. i would rather focus on the regulatory consequences of the crisis which, as we all know, have been farreaching and which we cannot consider as complete. that crises should have regulatory consequences has been a fairly frequent occurrence in financial history. you may recall, for instance, that the basel committee on banking supervision was created in 1974, in the wake of the mistrust triggered by the bankruptcy of the german bank hersttat ; that the financial stability forum was set up in 1999, following the bankruptcy some months earlier of the hedge fund “ long term capital management ” ; and that the successor to this forum, the financial stability board ( fsb ), came into being in 2009, after the lehman brothers debacle some months earlier. it is this latter institution, the fsb, which is pushing through a thoroughgoing amendment of the international regulatory framework, seeking to reduce the likelihood of further crises in the future. in this connection, the fsb has benefited from decisive contributions by, among others, the basel committee on banking supervision. identification of initiatives on the international regulatory agenda initially, the fsb identified a series of issues with a view to organising a coordinated agenda of regulatory initiatives at the international level. some aspects of the initial analysis, such as the design of structural measures in the banking sector ( which were, in principle, highly oriented towards setting limits on the size of banks ), were initially rejected by the fsb. however, as we now know, there have been several initiatives along these lines. cases