particular. first, the changes in the prudential regulation of solvency, the move from basel ii to basel iii. and second, the progress in what has become known as macroprudential supervision. as we know, the financial crisis especially affected banks and, in particular, certain global systemic banks. the response of international banking regulators has had to be commensurate with the dangers of the crisis and with the cost of the crisis to taxpayers. basel iii is a complex set of measures that attempts to respond to the regulatory failings that the crisis highlighted. first, many banks found themselves at the start of the crisis with low levels of capital. second, this same capital had an excessive proportion of hybrid instruments, with a limited or, at least, uncertain loss - absorption capacity. third, and finally, the procyclicality of basel ii meant there was a trade - off between capital requirements and growth, which could push banks to lessen the risk they assume, with the subsequent adverse impact on credit and the economy. basel iii has increased the minimum level of core capital, the highest - quality capital, to 4. 5 % from 2 % under basel ii. on top of this minimum, basel iii has added a capital conservation buffer of 2. 5 % and established a connection between banks ’ dividend policy and compliance with this minimum capital level. accordingly, to avoid any interference by the supervisor in their dividend policy, banks must at all times hold a minimum level of top - quality capital of 7 %. for the first time, too, basel iii has added a macroprudential component to capital levels. the countercyclical capital buffer could entail an additional capital requirement of up to 2. 5 %. building up a capital buffer in good times, with the aim of depleting it in not so prosperous times, is a macroprudential mechanism that will help reduce the contraction of credit when there is a recession, and temper the growth of credit in upturns. however, calibrating the buffer is no easy task. as governor of the banco de espana, allow me to point out how, in its economic significance, this countercyclical buffer is close to the so - called “ dynamic provisions ” the banco de espana established more than 10 years ago — with, i should say, less success than, we now know, bis central bankers ’ speeches would have been optimal. we believe this countercyclical buffer is a

the banks ’ situation even more difficult. loan losses reduced bank capital, which led to banking crises in many countries. problems in the banking sector led to further problems in the real sector of the economy. crises in the financial and real sectors have had adverse effects on public finances, as tax revenues have plummeted and public expenditures have risen. this means that in many cases financial and economic crises have been followed by crises of the public finances, as we are now seeing in europe. the nature of the crisis has reminded us of a basic fact, perhaps overlooked in the previous years. liquidity is extremely important. this means that the tasks of the central banks as liquidity creators and providers have come into focus. this has happened everywhere, russia included. for its part, the bank of russia acted quickly to ensure the liquidity of russian banking sector, as did other central banks in their own economies. in fact, we have been reminded of some very old lessons in economic policy - making. already in 1873 walter bagehot told us that central banks should lend freely to illiquid but solvent banks if they have adequate collateral to offer. what are then the broader lessons for policy - makers? how should economic policy be designed in the new era of globalization? it is clear that even if countries have become dependent on each other, economic policies still matter. moreover, national economic policies have international dimensions and international repercussions. during the current, very difficult crisis, central banks have been able to ensure the functioning of the banking systems. for sure, there have been problems in many private financial institutions, and some of them have failed, but functioning of the whole financial systems has been preserved. actually, successful liquidity policies have only been possible through broad international cooperation. if there is anything positive about this crisis, it is the proven capacity of central banks to act in cooperation with each other. fiscal policies have been loosened significantly, globally, and this has supported the level of overall demand although the private sector has turned to consolidating its balance sheets. the countries which entered the crisis with sound public finances have been in much better position. i am glad to note that during the upswing years, russia was able to save for the rainy day through its stabilization fund and by paying off its debts. this has made reacting to the crisis much easier. also in finland, the pre - crisis years witnessed large public surpluses, which allowed the fiscal policy to be loosened when the crisis hit. however