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

standards. despite the reform, banks kept the strong provisioning level set by the former rules, and today they face the current situation with a sound buffer of loan loss provisions ( 1. 3 % of total assets at the end of 2007, and this despite bad loans being at historically low levels ). • the second characteristic that has proved useful is the bank of spain ’ s prudent approach to bank regulation. one example has been our stance on off - balance sheet investment vehicles. we have not prohibited the development of investment vehicles, but we told banks that if they set up special investment vehicles, these should be consolidated with the group, and therefore be subject to capital requirements and provisions. under these conditions, no such vehicles were set up. as a consequence, the spanish banking system has not been so seriously hit by the de - leveraging process as other systems that have a freer attitude towards these vehicles. furthermore, securitisation in spain has mainly been used as a financing tool, to raise resources on the wholesale financing markets in order to meet the demand for loans from households and businesses. since the element of credit risk transfer was limited, spanish banks have had little incentive to issue overly complex financial instruments. furthermore, we have always required capital to be held against liquidity enhancements to securitizations, which we consider may have significant credit risk. let me take this opportunity to make a brief observation on the securitisation sector, which some have described as being in “ dire straits ”. i am sure that this sector will ultimately recover. but to do so, it must distinguish between traditional products that are sound, transparent, standard and easy - to - value, and “ multi - layer ” securitisations and complex structured products which are difficult to understand and assess. the good news is that the market is starting to differentiate between products. an example of this is the recent placement of several spanish banks ’ issues of simple covered bonds. in short, our recent experience shows that to be successful supervisors we need to combine an open attitude to financial innovation whilst keeping at the same time some good old fashioned supervisory suspicion towards it, especially when it entails overwhelming complexity or elements of regulatory arbitrage. the spanish banking system has faced the recent turmoil from a well - capitalized, profitable and efficient position. however, there is no room for complacency. in today ’ s global financial system, the spanish banking system is not immune to problems if serious global