##sise this point. it is true that a certain degree of cyclicality in risk management techniques and regulations is not only unavoidable but also sensible. we regulators ask banks to be more risk - sensitive and risk - sensitive usually means pro - cyclical behaviour. the second part of my address will deal with the forward - looking provisioning system recently adopted in spain. the merit of this regulation is that it introduces incentives for better risk management by banks, while at the same time attenuating the cyclicality of the financial sector and, thereby, swings in the real economy. in my concluding remarks i will try to summarise the main lessons we have learned in discussing, designing and implementing the new system, with an emphasis on the broader economic view rather than on the purely supervisory one. let me bring forward my main conclusion : there are regulatory mechanisms, like dynamic provisioning, that provide incentives for sound risk management and are anti - cyclical by nature and can therefore moderate cyclical swings. * * * * * recent experience in a number of countries shows that credit expansion and asset price increases - and bubbles - are mutually reinforcing processes ( see graph 1 ). asset prices may start to rise in an economy because new investment opportunities appear or simply because of overly lax financial conditions. when asset prices rise so does the value of collateral, which makes financing easier, increasing the demand for assets. that in turn pushes asset prices upward. in the downturn, as the value of collateral drops, financing possibilities decline, as does thus credit growth, a process often reinforced by financial institutions pursuing much more cautious credit policies as they are incurring losses or making smaller profits in this phase of the cycle. tighter credit policies reinforce recessionary forces and provoke additional reductions in asset prices. this sequence affects different categories of assets ( commercial property, residential property, equity ), whose impact on the real economy and transmission channels differ. commercial property seems particularly linked to the business cycle, while residential property has a larger impact on consumption. equity prices are intertwined with business profits and investment but are also related to spending through wealth effects, depending on the role equity plays in the determination of financial wealth. this interaction between credit cycles and asset price bubbles poses a number of challenges for the authorities and regulators, both in the monetary policy and financial stability domains. in the upswing, inflationary pressures related to excessive credit growth are compounded by financial imbalances resulting from unwarranted optimism on the part

29. 04. 2022 presentation of the action plan against financial fraud * ministry of economic affairs and digital transformation pablo hernandez de cos governor * ienglish translation of the original speech in spanish. first deputy prime minister, state secretary for security, chair of the national securities market commission, authorities, ladies and gentlemen, good morning. the protocol we sign here today stands as a milestone in our efforts to enhance and reinforce action against potentially fraudulent offers of financial products and services. it comes at a particularly opportune time, with several factors giving rise to an increase in financial fraud, most notably growing digitalisation. moreover, it is an excellent example of how a problem for citizens can be addressed far more effectively through collaboration between different stakeholders, be they public or private. in the case of the banco de espana, apart from the evident microprudential and macroprudential concern for the security and resilience of the supervised entities ’ it systems, the impact that fraudulent use of technology may have on the citizens and firms that use banking or credit services has been a concern of ours for some time. such fraud can also come at a high reputational cost to the financial system, the proper functioning of which depends on mutual trust between supply and demand. there are many examples of fraud that undermines said trust, such as identity theft when opening payment accounts, in “ know your customer ” procedures or to arrange and draw loans and credit ; payment fraud, mainly in card transactions, transfers and remittances ; and fraudulent offers of financial operations or services by unauthorised or unregistered operators, which are typically a prelude to actual fraud. more recently, though, new technologies and business models have paved the way for platforms and operators that, engaging in regulatory arbitrage, offer payment, credit or investment services without sufficient safeguards and transparency. here i would specifically mention operators in the crypto - asset arena, which promise handsome rewards via apps, websites and apparently innocuous advertising, and sometimes even embed such offers in traditional payment service chains, making them harder to identify. unfortunately, these practices do not distinguish between social groups, levels of financial literacy or risk profiles, and ultimately take a far greater toll on the more vulnerable groups, in particular young people and even teenagers, which is of particular concern. against this background, and notwithstanding any action that might be taken by the public prosecution service, the courts or law enforcement authorities in relation to criminal offences, our role