the existing macroeconomic conditions at any time, regardless of how frequently they may change. let me briefly review what may be considered the main challenges for this new paradigm of provisioning, rightly following the content of each of the conference panels. panel i of the conference will enlighten us with relevant background information to fully understand why and how the new provisioning model has changed, the potential pros and cons of alternative approaches, the differences between models and the reasons behind those differences. as briefly commented, modelling expected losses is a challenge. in panel 2, views from academia, practitioners and auditors will no doubt help us to broaden our perspective on issues such as the existing differences between the models needed to calculate the new provisions and those already in use for regulatory purposes, or for internal credit risk management. implementation issues, apart from the pure modeling challenges, such as compliance costs, reliable reporting under the new standards, comparability of financial statements across institutions, internal organisation, etc. are highly interesting aspects that will also be presented from the industry and supervisory viewpoint in panel 3. the time dimension of bank provisions, particularly potential pro - cyclicality and financial stability implications of the new approach, sets the stage for an exciting panel 4. admittedly, there is still little evidence gathered so far, given the short period of time over which the expected loss model has been in force, to arrive at definitive conclusions ; intuitively, moving from the incurred loss paradigm to the expected loss model should reduce the procyclicality of provisions in the future. i am sure that this issue will attract interest from academics, supervisors and practitioners not only during this conference but far beyond it as more evidence and data are gathered. whether provisions are pro - cyclical or not is a key matter for financial stability. finally, learning from the implications and interactions between the new provisioning standards and other types of regulations to which banks are subject – most notably financial market regulations and micro - and macro - prudential regulations – will prove a perfect topic 5 / 7 for the final panel of the conference. in this regard, the banco de espana experience2 with the setting - up of so - called dynamic provisioning3, which shares many characteristics of the current countercyclical capital buffer and is close to the concept of the expected loss model, serves as a good example of how closely linked provisioning standards, capital and macroprudential policies are. from a financial stability perspective, the fact that supervisors are

18. 10. 2018 welcome address conference “ the new bank provisioning standards : implementation challenges and financial stability implications ” / banco de espana, fsi and cemfi pablo hernandez de cos governor of the banco de espana good morning to everyone. it is my pleasure to welcome you all to the conference : “ the new bank provisioning standards : implementation challenges and financial stability implications ”, hosted by the banco de espana and co - organised with the bis financial stability institute and cemfi. let me first thank these two institutions for their participation and active involvement in the conference. the invaluable work and expertise of the fsi and the ever - necessary academic rigour provided by cemfi combine perfectly with the banco de espana ’ s long - dated experience in banking supervision and create the sufficient conditions for this event to be a fruitful one. these three elements should be the ideal ingredients to ensure a promising and, hopefully, successful conference. furthermore, the presence of leading international figures from academia, the banking industry and supervisory, accounting and auditing organisations as chairs and panelists, are an effective guarantee that a lively and enlightening debate over the next two days will arise and retain the interest of the audience and ultimately meet the organisers ’ original aspirations for the conference. as a starting point, we should recall that credit risk is, by far, the most important type of risk universal banks face, as their customary activity is based on granting loans. as a result, the relevance of how credit institutions deal with this type of risk and how they identify and handle it is of paramount importance. in this regard, the precise calculation of provisions plays a crucial role in how banks manage appropriately their credit risk. an adequate level of provisions according to the risk profile of each bank is the basis for fairly dealing with the expected future losses that are intrinsic to the credit business. to put it bluntly, the recent crisis showed that the way banks traditionally measured their credit risk was far from suitable. in fact, the huge level of credit impairments and the low level of provisions accumulated led to a depletion of capital and created a significant need in many advanced economies for banks ’ recapitalisation plans. many of those plans were funded by taxpayers ’ money. looking back, we may remember that the new approach of recognition of credit losses and its materialisation in banks ’ provisions emerged as one of the responses to the financial crisis. in that respect, g20 leaders urged accounting standard - set