banks which developed the originate - to - distribute model. as conceived by spanish banks, asset securitisation was not a business in itself but a mechanism to obtain additional funding. in this way, risks were not transferred to the financial markets but were retained on the balance sheets of the banks granting financing, and the perverse incentives under the originate - to - distribute model were thus avoided. second lesson : on the use of complex products that are difficult to assess and lacking in transparency the process of asset securitisation has also differed across banking systems as concerns the complexity of the products developed. the second key aspect of the turbulence is that some international banks, particularly when securitising us subprime mortgage loans, used highly complex structured products that are difficult to assess and lacking in transparency. products such as cdos, cdos of abs and cdo squared have been prominent in recent months in the business news, especially because of their adverse impact on the results of the biggest international financial institutions. some of these products used the bonds resulting from a specific securitisation, packaging them and combining them with other financial instruments in order to re - securitise them. other products, to offer another example, were made up of securitisations of relatively heterogeneous asset portfolios, in which the degree of concentration was high. evaluating these products required the use of sophisticated models based on numerous assumptions and on information not directly observable in the markets. also, owing to their recent development, the models had not been tested in a highly adverse scenario. in addition, the sophistication of these products meant that the calculation of the parameters needed for the valuation models was more complex, making it increasingly difficult to value the level of risk incurred. events have highlighted the fact that the valuation models have not worked well, meaning that many banks have miscalculated the level of risk assumed and that stress tests have not worked properly. beyond these quantitative considerations, the use of these complex products also indicates significant shortcomings in the more qualitative facet of risk management. quite simply, numerous banks and investors took positions in products that they did not properly understand. and today it is quite clear to see that they have perhaps committed the most basic error contrary to sound risk management, i. e. investing in products whose risks have not been fully understood. the third ingredient the turbulence has revealed in relation to this type of product has been the lack of transparency, both

##d. indeed, the tasks to be performed pose an even more demanding challenge, considering that the turbulence is coinciding with a period of internal adjustment and deceleration in the world economy. the deterioration in macroeconomic conditions is most patent in the united states, with most analysts forecasting a sharp slowdown in the opening quarters of 2008. but slacker growth is also expected in europe in the coming months. the spanish economy, after an upturn lasting more than ten years, has also begun its adjustment. for all these reasons, as economic agents we all have a significant " to do " list ahead of us. i shall begin by referring to credit institutions, since it is up to them to continue managing properly the risks they assume, developing adequate risk measurement, control and management systems and, in short, determining what level of solvency is appropriate to their risk profile. in the present circumstances of the international financial markets, there are certain considerations that i believe to be particularly significant. first, spanish banks must respond appropriately to the change in cycle under way in our economy. this entails not only properly managing defaults as they occur, but also tempering the slowdown in the rate of credit expansion. it would be counter - productive for the spanish economy if an excessive reduction in credit growth were to limit its capacity to grow. second, as i have pointed out already, spanish banks ’ income statements have escaped the effects of the us sub - prime mortgage crisis. however, unquestionably the environment in which spanish banks will have to operate, and indeed in which they already do operate, has become very difficult. insofar as higher financing costs may affect their operating margins, alternative mechanisms for keeping their income statements sound must be strengthened. an initial consideration in this respect is that a high percentage of the financing granted in spain is variable rate, so banks have a greater, almost automatic, ability to pass cost increases through to borrowers. further, in the last few years spanish institutions have shown notable skill in managing operating costs, becoming some of the most efficient players in the world. in the current circumstances, progress along these lines is even more necessary. third, and very importantly, some of the international markets on which spanish institutions have raised financing in recent years have narrowed substantially. in this respect, the lack of discrimination seen in the last few months is surprising, as the markets have similarly penalised products whose features, in terms of level of complexity and risk, are substantially different.