that are not the most productive ), a macroprudential approach to financial system regulation and supervision can conceivably mitigate the accumulation of these types of risks or reduce the cost of their subsequent materialisation. specifically, macroprudential policy is entrusted with ensuring the soundness of the financial system in the face of systemic risk. this is, namely, the risk that financial instability becomes brunnermeier et al. ( 2009 ). see tinbergen ( 1956 ). so widespread that it hampers the functioning of the system to the extent that economic growth and the welfare of the population are adversely affected. the “ macro ” prefix to this policy thus refers, on one hand, to the fact that it adopts an aggregate approach for the financial system as a whole ; and, on the other, that it seeks to regulate the financial cycle, since this may amplify the economic cycle. the “ prudential ” suffix, for its part, refers to the fact that it has to act pre - emptively ; it will seek firstly to mitigate the accumulation of systemic risk or its potential materialisation, and secondly to generate buffers ( mainly capital buffers in the case of banks ) enabling the impact of systemic risk, should it materialise, to be cushioned. the multi - dimensional nature of systemic risk one characteristic of macroprudential policy is the multi - dimensional nature of its objective : to prevent systemic risk. theoretical and empirical research appear to concur that there are at least two dimensions to this risk which, moreover, can interact with each other. the first is the time dimension, which is related to how systemic risk evolves over the course of the financial cycle. a good example of this dimension can be found in the run - up to the global financial crisis. during those years, there was strong growth in credit to the nonfinancial private sector in spain ( in particular to real estate development and construction activities ), attaining levels far above those considered sustainable. this situation was accompanied by price rises and increases in real estate market activity, also to unsustainable levels. against this background, household and corporate debt associated with real estate transactions mounted to such an extent over time that, when its sustainability was questioned and financing ground to a halt, there was a sharp correction to these financial imbalances. this correction had a considerable cost in terms of gdp and employment, directly affecting the losses the financial system would have

fernando restoy : challenges for banking resolution closing remarks by mr fernando restoy, deputy governor of the bank of spain and chairman of the frob ( the fondo de reestructuracion ordenada bancaria – fund for orderly bank restructuring ), at its conference, madrid, 4 june 2014. * * * introduction good evening. i welcome this opportunity to share with you some thoughts on banking resolution. i cannot think of a more qualified audience to discuss this matter than that invited by the frob for this conference, with representatives of competent authorities in the field, among others. i will organise my remarks as follows. first, i will briefly describe how i see the general global framework for banking resolution established after the crisis. next, i will review the special features of the european case. and finally, i will concentrate on the lessons to be drawn from the spanish experience, with a special reference to issues relating to the institutional design of banking resolution. the global framework for banking resolution after the crisis we all know that banking resolution has not achieved the status of a well - defined policy area until very recently. actions taken by authorities in relation to failing or likely - to - fail institutions have followed a discretionary case - by - case approach, particularly with respect to the availability of public funds to protect banks ’ creditors. the idea was that, as there was no ex - ante commitment to possible public bail - outs, the risk of moral hazard in relation to risk management policies and investors ’ decisions could be sufficiently contained. the recent crisis has however illustrated very clearly the limitations of this “ constructive ambiguity ” approach. thus, during the crisis, and in particular after the collapse of lehman brothers, the authorities have openly recognised that bank failures – even if they are not particularly large or complex – can seriously impair financial stability, making bail - out a natural policy response. as a consequence, there were widespread bail - outs of creditors of banks under stress. these rescues have obviously confirmed the existence of an implicit guarantee for banks ’ liabilities which constitutes a serious challenge for fiscal balances and a substantial distortion of the system of incentives for bank managers and fund providers. there is now broad agreement that in order to restore the socially desirable incentives and minimise the use of public resources, it is not enough to work on preventing bank failures by adopting appropriate regulatory and supervisory policies, but rather it is also necessary to be able to deal with non - viable banks in an orderly fashion and obviate the per