. in the preventive phase, banks must draw up recovery plans in the event that their situation should significantly worsen. the authorities will, in some cases, be empowered to appoint managers at banks. the principal resolution measures would be the sale of part of the business ; the establishment of bridge banks for the temporary transfer of healthy assets to a bank controlled by the public sector ; the segregation of assets through the transfer of impaired assets to a management vehicle ; and measures that impose losses on shareholders and uninsured creditors, known as a bail - in as opposed to a bail - out, which involves or usually involves the assumption of losses by the public sector. the bail - in tool will allow the resolution authorities to cancel or convert into capital the entitlements of the shareholders and creditors of banks that are insolvent or close to insolvency. under the decision by ecofin, the deposits of individuals and of small and medium - sized enterprises, along with liabilities to the european investment bank, will have preference over uninsured creditors and over the deposits of large corporations. the deposit guarantee fund will at all times make good any guaranteed deposits, i. e. those of less than €100, 000, which will have greater seniority or preference over other deposits. in any event, the bail - in will exclude, inter alia, insured deposits, i. e. deposits of less than €100, 000 ; secured liabilities, such as covered bonds ; and liabilities arising from participation in payment systems, along with interbank liabilities with an original maturity of less than seven days. the draft directive further requires member states to set up ex - ante resolution funds. these funds will be used to temporarily support banks under resolution by means of loans, guarantees, asset purchases or capital for bridge banks. they will also be used to fund what may be called an “ element of flexibility ” of the directive, which i shall refer to in a moment. over the next 10 years these funds must be built up to a volume equivalent to at least 0. 8 % of the insured deposits of the country ’ s credit institutions. in this connection, banks must make annual contributions based on their liabilities. the draft directive leaves to the discretion of the member states the matter of whether resolution funds and deposit guarantee funds are merged or kept separate. finally, as i said earlier, the ecofin agreement introduces an “ element of flexibility ” so that national resolution authorities, in certain

##ilience, both of which had been identified as factors of risk to financial stability. that said, the european banking industry faces a series of additional challenges stemming from the changes under way in regulation and supervision, which have arisen as a response to the financial crisis. i shall now turn to some of these challenges, beginning with those linked to the current macroeconomic and financial situation. bis central bankers ’ speeches first, it is a concern that in some market segments investors, in their search for yield, may be taking on excessive risks. financial conditions might be adversely affected were there to be a sudden reversal in this process, in particular if that reversal were to bring about sharp price corrections, especially in less liquid market segments. second, there are also worries about low profitability. the comprehensive assessment deemed solvency to be comfortably acceptable, but profitability in the banking industry remains prone to downside pressures, particularly in a macroeconomic setting that is worse than was expected some months back. low returns hamper organic capital accumulation and raise doubts over the medium - term sustainability of banking activities. banks will have to adapt their strategies and business models to enhance their profitability in a sustained fashion. finally, i would highlight the risk of concerns re - emerging over the sustainability of sovereign debt, especially against a background of low nominal growth. this risk has not fully abated and might rear up again in the event of a substantial macroeconomic downturn. these three risks are not mutually exclusive. indeed, a common denominator they share is the current weakness of euro area economic growth. but, irrespective of the transmission channels through which sluggish economic growth may translate into financial instability, it is precisely this weakness in nominal growth in the european economy that is the main risk to the area at present. the spanish banking industry the spanish banking industry is not immune to these risks. to date in 2014, the rate of decline of lending to the resident private sector has shown signs of easing, in terms both of bank lending to households and of that to non - financial corporations, especially those not pursuing real estate or construction - related activities. in any event, the performance of lending at the aggregate level is affected by the need to continue redressing high private - sector debt. the npl ratio of the spanish banking industry continues to post higher levels than those observed a year ago. however, it has improved slightly in 2014. this correction has come about despite the fact that lending, the denominator