work of antoni gaudi. the modernistas looked to the past for inspiration, but applied modern tools and techniques to create something new with a focus on intricate details. of course, the basel ii framework does not have the beauty of gaudi ’ s sagrada familia, but i nevertheless think that both supervisors and the industry have accomplished something similar. basel ii builds on long - standing principles of bank safety and soundness, but with greater emphasis on modern tools of financial risk management and differentiation of drivers of risk. and, like the sagrada familia, the framework for basel ii is firmly in place but much work still remains until the plans are finally executed. as i ’ m sure you ’ re aware, with the publication of documents on trading book / double - default and downturn lgds last year, the basel committee has completed its work on basel ii policy development. our efforts are now firmly focused on the challenging task of implementing the framework as efficiently and effectively as possible. with that in mind, i would like to now touch on some issues relating to the calibration and implementation of basel ii, as well as work in both the committee and the industry on complex financial products and risk management calibration one of the committee ’ s objectives throughout the development of basel ii has been to maintain the overall level of capital in the banking system. to meet this objective, the committee introduced a socalled “ scaling factor ” of 1. 06 into the framework, with the agreement that this would be reviewed prior to final implementation. the committee has just completed its fifth quantitative impact study, or qis 5, and i would like to express my gratitude to those of you here today whose banks submitted data as part of this exercise. the basel committee will be meeting in berlin next week, and one of the main items on our agenda will be to discuss the results. we hope to be able to say more about calibration shortly thereafter. what i can say at this moment is that i have not seen anything that would call into question the framework, or which cannot be addressed through implementation.. we are carefully reviewing any dispersion of results to better understand the underlying reasons. some dispersion is to be expected within a risk - based system, but it is important that material dispersions are driven by actual differences in risk. in addition, while there is still a need for better data quality in the future, it appears that the quality of data

by lenders, which together with the higher economic uncertainty, might discourage them from lending. some lenders might react by demanding a higher risk premium on the interest rate charged on their lending operations, while others may instead decide to cut the amount they are willing to lend. this pattern has been observed in previous crisis episodes and, in particular, during the great financial crisis. for firms, the shock implies a significant fall in their turnover due to the lockdown measures introduced by authorities to prevent the spread of the virus. the turnover reduction together with the existence of fixed costs translates into an increase in firms ’ liquidity needs. firms may cover part of these needs by using their liquid assets or by resorting to the undrawn amounts in their credit lines, but in many cases these buffers will not be large enough considering the size of the shock. therefore, firms will try to cover their remaining liquidity needs by resorting to fresh borrowing. the result will be an increase in credit demand against the background of a possible contraction in credit supply. the severity in firms ’ liquidity risks depends on the amount and composition of liquidity shortfalls and the buffers firms have to cover them. according to micro simulations conducted by banco de espana staff, 68 % of firms would have liquidity shortfalls2 between the definition used here considers that a firm has a liquidity shortfall when cash inflows, basically arising from the sales of products or services, are below the payments relating to their operating activity ( supplies, rentals, financial expenses and personnel costs ) and those arising from their decisions to invest in fixed assets and debt repayments. april and december 2020, almost 10 pp higher than under a counterfactual scenario of no pandemic3. it is estimated that the corporate sector ’ s overall liquidity shortfalls between q2 and q4 2020 will amount to around eur 230 billion. ignoring liquidity needs associated with investment in fixed assets, which are less relevant for liquidity risks as this expenditure has a lower degree of commitment and can more easily be avoided, the liquidity shortfall during the same period is estimated to be around eur 25 bn higher than under the no - pandemic counterfactual scenario. additionally, results show that more than half of these liquidity needs could not be covered through the use of both firms ’ liquid assets and the undrawn amounts of their credit lines. these simulations also show that a prominent portion of firms ’ aggregate liquid