technology and the new payments regulation to offer their value - added services using the “ basic ” deposit - taking and account - management service platform provided by the banking system. this scenario represents both a short - term challenge, insofar as new competitors may enter specific areas, such as retail payment services, with the consequent drop in business and income for banks in this area, and, fundamentally, a major future challenge deriving from the risk that banks may be relegated to providing undifferentiated and low value - added basic services. against this competitive background, banks have a number of initial advantages but are being forced to react in order to capitalise on the opportunities the new situation offers. the responses may range from specialisation to digital transformation, taking advantage of the possibilities offered by technology and the new regulations, with an emphasis on adequate data management. in any event, this transition will entail a short - term increase in costs in a context of low profitability. issues such as cybersecurity also take on particular significance in the process of adaptation of institutions to new technologies as they can also lead to an increase in operational and reputational risk. i would also like to highlight the growing challenge bigtech firms are posing in the financial sector, not in their more prominent customer - facing facet, but as providers of a significant amount of financial - sector infrastructure in areas such as cloud - based services. these actors now constitute a critical component of the financial sector. in any event, new technologies offer banks fresh opportunities, both in terms of business and potential efficiency gains. the application of artificial intelligence and the use of large databases with real - time information ( big data ) may also provide for significant efficiency gains in terms of both business activity and regulatory compliance. 9 / 11 similarly, the use of new technologies in the financial sector may offer advantages to society in that it reduces intermediation costs, improves households ’ and smes ’ access to finance and facilitates financial inclusion ( see chart 8 ). financial disintermediation another factor making the environment in which credit institutions operate more competitive is the advance of financial disintermediation. in spain, as in countries such as germany and italy, the bulk of non - financial corporations ’ borrowing has traditionally come from bank loans. however, in other countries, such as the united states and the united kingdom, capital markets play a much bigger role in corporate finance. there is no consensus as to the optimal financing structure to best ensure financial

29. 05. 2018 testimony of the governor of the banco de espana before the senate in relation to the draft state budget for 2018 luis m. linde governor ladies and gentlemen, i appear before you today as part of the senate ’ s debate and approval process for the state budget for 2018. allow me to begin by reviewing the current international economic setting of the spanish economy and its outlook. i shall then refer to the main aspects of this draft budget. to conclude, i will mention what, in my opinion, are the main challenges for fiscal policy in spain in the coming years. the external setting of the spanish economy the external setting of the spanish economy broadly remains favourable, although the global economy is subject to factors of risk that should not be ignored. following several quarters of upward surprises, the opening months of this year have – more so in the euro area – seen some moderation in global economic activity whose scope is still uncertain. notwithstanding, the information available continues to point to the maintenance of the current upturn over the next two or three years, underpinned by the correction of the previous imbalances, agents ’ confidence, the favourable financing conditions and the boost from the expansionary fiscal policies in the united states. on the financial markets, despite the bout of marked volatility last february, asset values remain high by historical standards. at the same time, recent weeks have seen an appreciation of the dollar, which would be consistent with the expectations of further us interest rate rises, at a swifter pace than that in other economic areas. however, this appreciation might also be partly in response to a certain safe - haven effect, in a context in which certain risks appear to be rising, in particular in some emerging markets and areas subject to a high degree of political uncertainty. this latter factor is also contributing to heightening the uptrend in oil prices witnessed in recent months. the decline in activity observed in the euro area during the first three months of 2018, from 0. 7 % to 0. 4 % in terms of the gdp growth rate relative to the previous quarter, should be analysed with care. on one hand, it should be borne in mind that last year ’ s growth was particularly sharp ( the highest since the start of the crisis, almost a decade ago ) ; accordingly, it is reasonable to expect there should be some moderation. on the other, the as - yet very partial information available does not allow us to specify to what extent the change witnessed