05. 07. 2019 ten years of the frob and banking system transformations opening address to the conference : “ tenth anniversary of the creation of the frob ” pablo hernandez de cos governor chairman of the frob, chair of the single resolution board, chair of the european banking authority, vice - president of the european central bank, chairman of the financial stability institute, dignitaries, ladies and gentlemen, good morning. it is an honour and a pleasure for me to participate in the opening of this conference to commemorate the tenth anniversary of the creation of the frob. i should like to take this opportunity to congratulate the chairman of the frob, jaime ponce, and also his predecessors, fernando restoy and javier ariztegui, and their teams, for the work they have performed over the last ten years. the frob embodies one of the main institutional changes made during the restructuring of the spanish financial sector in the last decade, a process that has been fundamental in paving the way for the recovery of the spanish economy in the aftermath of the crisis. transformation of the spanish banking industry in the last decade this period has witnessed one of the most far - reaching transformations in the spanish financial system in recent decades and the frob has played an important role in bringing about this transformation. the spanish economy was engulfed by the international financial crisis at a time when significant imbalances had built up, which were particularly significant in our financial system. spain had an oversized banking system, excessively concentrated on lending to the residential property sector and highly dependent on international wholesale financing. in 2008, the consolidated assets of the banking system amounted to 304 % of gdp, bank lending to the property sector ( in the broad sense of the term ) reached 99 % of gdp and bank debt held by non - residents accounted for 24 % of gdp. moreover a significant number of deposit - taking institutions suffered from institutional and governance shortcomings. over the last decade many of these vulnerabilities have been resolved ; in particular, those relating to the high level of non - financial private sector debt, which is now at levels similar to those in the rest of the euro area ( having fallen by almost 70 percentage points of gdp from its peak in 2010 ). the weight of lending to property and construction activities has decreased by 47 percentage points of gdp. this reduction in non - financial private sector debt has been reflected in a decrease in the size of the financial sector and, in particular, in bank balance sheets in

. i will now focus on the first feature of the crux, the pitfalls on the climb towards recovery. i see three main pitfalls that may slow down the process of defragmentation or even reverse it : • competitiveness differentials across member states, • public and private deleveraging, and • institutional barriers in financial markets. in the following i would like to address each of the pitfalls one by one. competitiveness differentials across member states competitiveness differentials within the euro area – but also globally – are a challenge because they can lead to macroeconomic imbalances. the recent crisis has taught us a al - eyd, a. and berkmen, s. p. ( 2013 ). fragmentation and monetary policy in the euro area, imf working paper wp / 13 / 208. bis central bankers ’ speeches lesson how imbalances can put financial stability at risk. therefore, it is important that existing imbalances are corrected. in this respect i see remarkable progress in some areas. all periphery countries have recaptured some of the losses in competitiveness that had been incurred previously. there is no single best indicator of competitiveness, as there are many dimensions to this concept relating to both price and non - price factors. this notwithstanding, nominal unit labour cost developments provide a good indication of the extent to which an economy can effectively compete in terms of labour costs. but we should also focus on institutional competitiveness, that is to say the quality of governance, the cutting of red tape and efficiency of tax systems. these aspects have also formed part of the adjustment programmes that some countries are going through. overall, it is important to realise that one reason for the need to implement adjustment measures was a lack of action in the time before the crisis. it is not “ austerity ” that leads to weak growth, but structural weaknesses and low growth potentials caused the need for consolidation. 2 meanwhile we can see encouraging signs that these measures are bearing fruit. stressed countries such as ireland, spain or portugal – but also other euro area countries – have shown significant current account improvements. greece has improved its current account position by over 14 percentage points since 2008. at first, only imports decreased but lately also exports have grown. those countries that have reformed are being rewarded twofold : by their own success and the solidarity and support by the european community. as a result, imbalances within the euro area have decreased. hence, the financial stability risks emerging from