13. 02. 2020 thoughts on global financial stability and the european capital markets union annual spanish capital markets conference / afme ( association for financial markets in europe ) y aeb ( spanish banking association ) pablo hernandez de cos governor good morning. let me start by thanking jose maria roldan, chairman of the spanish banking association ( aeb ), and the association for financial markets in europe ( afme ), today represented by rick watson and richard hopkin. it is they who have organised this 11 th edition of the spanish capital markets conference and invited me here today. it is my pleasure to share with you some thoughts on matters related to the environment in which financial markets operate. in my address today, i shall first give a broad overview of the main risks to global financial stability and the various policy actions that policy makers could consider implementing to mitigate them. secondly, i will discuss recent developments and the way forward regarding the european capital markets union. the state of play of global financial stability the global economic outlook worsened during 2019. indeed, global gdp growth in 2019 is expected to be the lowest since the international financial crisis ; in addition, the balance of risks to this growth remained tilted to the downside, mainly as a result of the continuing high level of geopolitical uncertainty. the downward revision of economic forecasts over the past year was across the board ; in particular, however, it affected the euro area and emerging market economies. against this background, central banks responded by further easing monetary conditions. in the euro area, the governing council of the european central bank ( ecb ) resolved at our september meeting to launch a package of measures. these included cutting the deposit facility interest rate by 10 basis points ( bp ) to - 0. 50 %, strengthening forward guidance on interest rates and improving the financing conditions of quarterly targeted longer - term refinancing operations ( tltro - iii ). we also decided to resume net purchases under the asset purchase programme at a monthly pace of €20 billion as from 1 november and without a defined time limit. this additional global monetary accommodation is serving to stimulate growth and inflation. for instance, the imf argues in its last weo update that “ the 2019 global growth estimate and 2020 projection would have been 0. 5 percentage point lower in each year without monetary stimulus ”. in the case of the euro area, it is estimated that the ecb ’ s measures since 2014, including negative interest rates, have been pivotal to easing financial

and loss account ; instituions must also look particularly hard at the sustainability of their current business model based on strong growth in lending volume, and at the possible alternatives to this model. in the medium term, cost contanment and continuous improvement in efficiency will be pivotal in ensuring sound profit and loss accounts. spain ’ s membership of the euro area, which has made its economy more stable, has nevertheless enabled a faster pace of credit expansion than traditionally seen in this country, without spanish institutions having suffered notable financial imbalances. that said, their managers have to continue to act prudently and responsibly, considering possible changes in the economic situation that may arise during the course of the cycle and adopting strategies designed for the medium and long term. another matter on which institutions should reflect from this medium - term standpoint is the quality of their own funds. indeed, it should be borne in mind that their strengthened roe has been driven in the last decade by increased leverage of the quality of their capital ( i. e. the growing weight of subordinated debt relative to capital stock and reserves ). insofar as that leverage is reaching a maximum, no further improvements in roe derived from changes in the composition of regulatory capital should be expected. the challenges to be faced by financial institutions are, however, not limited to those deriving from the more conjunctural factors ; they are in fact largely traceable to the important changes in financial systems in the last few years. these changes include most notably the increasing degree of internationalisation of institutions ; the ongoing emergence of more sophisticated and complex new products ; the increase in risk transfer processes and, finally, the growing importance of a whole set of risks that not long ago were difficult to quantify. financial institutions have to respond to these challenges by improving their services to consumers and to society and simultaneously intensifying their efforts in two areas requiring a wide range of actions. first, they have to step up the efforts made to date in designing and implementing robust risk management systems firmly based on corporate governance best practices. in recent years, institutions have become fully aware of their importance and have made considerable headway in this direction, supported by improvements in calculation methods, available technical capabilities and databases, among others. at the same time, they must not neglect the need to invest in human capital, an essential factor in banking. but these investments in technical and human resources - and this is an additional challenge - must not involve any let - up in