acknowledge that the resilience of the financial system in general, and of credit institutions in particular, plays a key role in softening cyclical downturns. evident in this crisis has been the notable weakness with which many banks have faced the downswing. to increase their resilience, banking regulation policy can perform a pivotal function by curbing the countercyclical behaviour of capital, so that it protects banks and prepares them for the crisis. and to discuss this, i am bound in this second part of my speech to refer to rojo ( the spanish for red, and “ rot ” in german ). again, this is not only a type of wine but the name of the former governor of the bank of spain entrusted with steering and successfully ensuring the spanish economy ’ s entry into the euro area. it was also rojo who, in the final stage of his mandate as governor of the bank of spain, designed and put into practice the prudential regulatory mechanism of dynamic provisioning. this has contributed to reinforcing the stability of the spanish banking system and today commands wide recognition ; but, when initially launched, it aroused understandable rejection by spanish banks and was met with indifference on the part of the international community of banking regulators and supervisors. let me give you the background to this prudential and countercyclical regulatory mechanism. the origins of spanish dynamic provisioning must be sought in credit developments in the late 1990s. having emerged from the 1993 recession, the worst for 40 years in spain, the economy, and much more intensely so bank lending, began to expand at an increasingly brisk pace. the bank of spain was led to introduce dynamic provisioning, which came into force in mid2000, by a combination of factors. these included most notably : the mix of strong credit growth, with the dangers this entailed for the stability of the financial system ; heightened competition, which acted to exacerbate these risks given that credit institutions applied increasingly lower risk premia to maintain their market share ; the deterioration in the level of loan loss provisions and their extremely high correlation with current default rates ; and, finally, the bank of spain ’ s past supervisory experience. in addition to the practical issues i have mentioned, behind dynamic provisioning there lied a conviction, resulting from many years of supervisory experience and, more recently, also from empirical evidence, that credit risk appears in bank balance sheets at the time lending is granted. risk is an ex ante concept,

must be stock - exchange listed when above a certain size. a more substantial alternative would be a law requiring savings banks to cease holding significant stakes in credit institutions, within a reasonable period, and to invest as they see fit, perhaps obtaining higher returns, in order to continue to pursue their welfare aims. yet while, as i have already said, much progress has been made in improving the resolution toolkit, the banco de espana needs to continue to be equipped with instruments to enable the performance of its supervisory tasks to be quick and simple rather than complicated and slow. for this purpose it would be desirable to transfer a significant part of the powers of the ministry of economic affairs and competitiveness in relation to sanctioning, licensing, etc., to the banco de espana, in line with what the imf has been suggesting for some time. also, the frob needs to be authorised to assume the powers of the shareholders in general meeting in relation to banks taken under official administration and legal requirements that delay asset and liability transfers need to be eliminated. as for the banco de espana, it should equip itself with supervisory instruments to ensure that problems can be promptly corrected and it should distance itself from a legalistic system that envisages official administration only as the very last resort, when all legal requirements have been violated. also, although the banco de espana ’ s professional and collegiate decision - making structure – one of its valuable traditions – must be maintained, it needs to be documented further and made more systematic, and the information that has begun to be supplied on the banco de espana ’ s website needs to be expanded. more important still, however, is the need for the banco de espana ’ s autonomy in the area of supervision to continue to be respected and for governments to continue to resist the temptation to interfere in its supervisory decisions, while continuing to design legal bis central bankers ’ speeches instruments and to defend the proper use of public resources. the banco de espana must continue to maintain a dialogue with governments, not only advising them but also listening to them ( since nobody has a monopoly on good ideas ), although supervisory decisions must continue to be based, as up until now, solely on a professional basis. i have been emphasising today what has been done during these years of crisis by spain ( that is to say, everyone, because until our country has regained the trust of the rest of the world, the attention of investors will continue to be focused on what everyone has done and is doing to correct