are also currently looking at the way a spanish macroprudential authority should be set up. changes in bank regulation ladies and gentlemen, i would like to turn now to the changes that have occurred in the regulatory field bis central bankers ’ speeches the crisis we are still going through was triggered, on the one hand, by the extraordinary loose monetary and financial conditions – and the expansion of credit – of the period between 2000 and 2007. on the other hand, inadequate rules – result of two decades of deregulation, and sometimes bad deregulation – compounded the problem and facilitated high leverage. the basel capital ratios of the time were low or, in some cases, not applied. there was excessive reliance on internal bank models. the way var models were defined by basel and applied by banks underestimated what we call tail risks, that is, risks associated to events with low probability of occurrence but extremely high cost. therefore, there was a need for a regulatory response after the crisis. since the main elements of this response are well known, i will limit myself to a few remarks. first, the response took a predictable pattern : the strengthening of capital requirements, both as regards levels and quality of capital. basel iii is first of all about this. second, as already mentioned, the crisis highlighted the need to introduce a macroprudential perspective in financial regulation. the new counter - cyclical capital buffer in basel iii is an important step in this direction. however, the implementation of this instrument will not be easy. the right time for its activation will be difficult to determine and there is uncertainty on the appropriate size of the buffer. third, another important element of the new regulation is the introduction of a new leverage ratio. the result is that two different approaches, one risk - weighted based and the other one non risk - weighted, will coexist under the roof of basel iii. this, i believe, introduces some tension in the regulation. fourth, it is worth noting that, while basel iii brings in convergence in the numerator of capital ratios – which is a positive development – improvements will be needed in the calculation of its denominator. available evidence – that is now being considered by the basel committee – points to differences in the measurement of risk weighted assets across jurisdictions, which are not always easy to justify on the basis of differences in the nature of risks. and, fifth, basel iii introduces liquidity standards aimed at addressing the deficiencies in liquidity risk management that became

efforts to retain adequate internal risk control methods and to invest in technology and human capital. furthermore, banks have to maintain their capacity to adapt to a changing environment and be able to take advantage of the new financial landscape. the supervisory model will face new challenges ahead, as the global banking system is continuously evolving. new products of increasing complexity and new players subject to little or no regulation are continuously appearing. the model must be flexible enough to maintain its adaptability, without losing its solid foundations. accordingly, spanish banking supervision has recently developed its own methodology based on the continuous monitoring of every banking institution, complemented by frequent on - site inspections. this methodology incorporates a risk - focused approach, that enables it to strengthen preventive measures without forsaking the objectives of solvency and stability. there are no doubts that in the current context of deceleration in the world economy, distortions and tensions in global financial markets and an increasingly uncertain economic outlook, to have a sound and securely managed banking system is of paramount importance. only on that premise will we be firmly placed to meet the fresh challenges arising from the new financial environment. and, in this context, the spanish experience provides us with final lesson : that any process of financial liberalisation or rapid innovation has to be accompanied by the application of appropriate regulatory and supervisory measures. thank you for your attention.