jaime caruana : what next for basel? remarks by mr jaime caruana, governor of the bank of spain and chairman of the basel committee on banking supervision, at the seventh annual supervision conference of the british bankers association, london, 9 october 2003. * * * introduction mr. mullen, distinguished guests, and members of the british bankers association, it is an honour for me to address you this morning as the new chairman of the basel committee on banking supervision. this conference, the seventh to date, encourages a healthy exchange of ideas between bankers and supervisors on ways to promote safety and soundness in the banking sector. today ’ s agenda offers a timely focus on the development of regulatory policy on several levels – on a national level through the mission of the financial services authority, on a european level through the directives of the european union, and, of course, on a global level through the standards adopted by the basel committee. it seems appropriate to think about banking and supervision on national, regional and global levels. enhancements in telecommunications, continued expansion in trading relationships, and the increasing interdependence of markets make it difficult to view banking on a purely local or even domestic level. bankers are no strangers to the global economy, having underwritten letters of credit to exporters and merchants almost since the first trading vessels plied the rivers and seas. however, it seems fair to say that the pace of globalisation and innovation has accelerated dramatically in recent years. as banks enter new markets, create ever more complex products, and pursue customers near and far, the challenge for all of us is, first, to understand how our risk profiles are changing and, next, to find responsible ways to manage them. whether they compete on a national, regional, or global level, banks have developed countless new tools and processes that promote their competitiveness, strengthen their returns, and control their exposures to credit, market, operational, and other risks. in turn, supervisors must review periodically the tools and processes at our disposal to ensure that our regulations and practices accommodate changes in market trends, the introduction of innovative products and services, and advances in the art of risk management. the current efforts to reform the international guidelines on capital adequacy represent a critical review of the cornerstone of bank supervision. the members of the basel committee have devoted substantial resources to this reform because we believe that, when banks are adequately capitalised and well managed, they become more stable and better able to withstand periods of

authorities on the capacity to make use of these buffers and on the flexibility as to how they are subsequently rebuilt is essential. in this respect, the authorities have made it very clear that banks will have sufficient time to resume compliance with the capital requirements, and that the rebuilding process will not in any event begin until the main effects of the pandemic have been dispelled. in any event, the evidence available in the coming months on the effective use of these capital buffers, once the losses stemming from the covid - 19 crisis materialise, will be essential to allow conclusions to be drawn on the effective use of these buffers and to assess whether any additional measures may be needed. based on the experience obtained during this crisis, and on a medium - term horizon, the balance between structural and countercyclical capital buffers could also be analysed as a way of avoiding the difficulties i have mentioned, should they arise. thirdly, i also wish to refer to the treatment of dividends during the crisis. as you are all well aware, one of the recommendations of the european prudential supervisors, which has also been made in many other countries, is that banks should refrain from distributing dividends and be highly prudent when paying bonuses to their staff. this measure seeks to ensure that, in this highly uncertain setting, banks are able to build up sufficient funds to absorb losses. in general, all spanish banks that were legally able to suspend or defer dividends to be distributed out of 2019 income complied with these recommendations. this enabled them to increase in 2020 the capital buffers they had already built up before the onset of the pandemic. the positive impact of this measure supplements and has been reinforced by other decisions taken by the various economic authorities, which, as i have said, have released a large part of the macroprudential buffers and have mitigated the impact of the pandemic on banks ’ income statements. to date, the potentially negative side effects of these measures have been limited. although the cost of capital for banks rose substantially with the onset of the pandemic, following the implementation of the broad raft of measures introduced to mitigate its impact this increase has been fully corrected. in addition, the recommendation to limit dividend payouts does not appear to have had a significant effect, at least in most european banking systems. another question that hampers the use of capital buffers by banks is that, under the current regulations