field of expertise, that can produce groundbreaking research and that are able to attract talent from any part of the world. this is precisely what cemfi has done in the area of economics and finance, and this is why the banco de espana is so proud to have contributed to its creation and development. an independent assessment of the quality of cemfi is contained in the recent evaluation report by three distinguished economists, marianne bertrand and raghuram rajan, of the university of chicago, and nobel laureate jean tirole, of the toulouse school of economics. the report starts with the following bold statement : “ cemfi is a remarkable adventure, both on the research front and in terms of educational achievements. a relatively recent introduction in the landscape of european higher education in economics, cemfi has succeeded in establishing itself as one of the premier research centers and postgraduate schools ( in europe ). ” a number of factors have contributed to this success. first, i tend to think cemfi has 1 / 2 bis central bankers'speeches benefitted from the long - term stability that the institutional support of the banco de espana has given it. second, it has a very good working relationship with the university system, through the agreement with universidad internacional menendez pelayo, which provides the official recognition of the master ’ s and phd degrees. at the same time, it is not burdened by some of the constraints, that make it difficult in continental europe to organise graduate studies comparable to those of the best us universities. third, cemfi has developed over the years norms of behaviour and a collective culture in respect of the admission of students, the hiring and promotion of faculty, and the responsibility and commitment to the institution that are key ingredients for achieving excellence in training and research. finally, cemfi has been fortunate to count on an outstanding leadership that has steered its development over the years. besides the master ’ s and phd programs, and the important contribution of faculty to frontier research, cemfi provides other valuable services. these include the summer school, which brings in leading academics to teach courses in relevant areas to participants, a large number of whom are central bankers. it also organises a highly - demanded summer internship programme for top undergraduate students. and it collaborates with the banco de espana in the training of bank supervisors, and in the organisation of research workshops and conferences. in terms of broader service to spanish society, three faculty members participate in the council on economic advisors that advises the

intimated in the analysis is that, given the risks over - regulation entails, an alternative approach might be to economise on regulatory changes and to increase supervisory intensity instead. that is to say, there should be an attempt to contain the avalanche of new regulatory requirements applicable across the board, replacing some of them with intrusive supervisory measures, adapted to each bank ’ s specific situation. this is admittedly a very attractive idea which i would like to explore in the rest of my speech. supervisory challenges until recently, core supervisory actions in many jurisdictions had focused, perhaps excessively, on the surveillance of banks ’ solvency through the monitoring of capital ratios as defined under current regulations. it is nevertheless true that the implementation of basel pillar 2 on the basis of the regular supervisory review exercises has somewhat changed the situation. pillar 2 allows specific requirements to be made of each bank on the basis of its risk profile so as to cover aspects not contained in pillar 1 ( minimum regulatory capital ratios ). in that way the supervisor can regulate solvency requirements by adjusting them to each bank ’ s situation, thereby bis central bankers ’ speeches extending the supervisor ’ s discretion and reinforcing its role, while reducing commensurately the relative significance of the general solvency requirements set in the regulations. likewise, the inclusion of stress tests as a supervisory tool extends the supervisor ’ s capacity to impose capital requirements or other constraints on banks when this is necessary to withstand adverse scenarios, even if such scenarios are rather unlikely. once again, this tool broadens the weight of supervisory action. that said, in order to optimise the scope of supervision, supplementary instruments – that are not always available in accordance with the prudential regulations in force – are needed. for instance, not in all jurisdictions must the supervisor expressly authorise the eligibility of certain capital instruments, the acquisition of qualifying holdings in other financial institutions or dividend pay - outs charged to reserves. above all, effective supervision should occasionally be based on discretionary actions rather than mere application of the instruments expressly provided for under the regulations. in particular, the supervisor should have the real capacity to influence bank managers ’ decisions through moral suasion and to formulate non - legally binding recommendations, in the sure knowledge that they will in practice be very widely followed. supervisory actions would otherwise be excessively hampered by a regulatory framework which, despite having been honed in recent years, can hardly envisage all situations of supervisory significance or include the full