will turn to efforts in this area shortly. financial stability i would now like to touch briefly on financial stability issues. the start of the preparatory work for the european systemic risk board ( esrb ) – the body in charge of macro - prudential oversight in the eu – allowed its smooth establishment in 2011, together with the european supervisory authorities. the esrb is now fully operational, with its general board having already met twice and its advisory committees in place. the ecb has been entrusted with the provision of analytical, statistical, logistical and administrative support to the esrb. hence, the ecb is making the utmost effort to enhance its capabilities and analytical tools for conducting systemic risk analysis. in the context of the basel iii framework, the ecb fully supports the european commission ’ s work on the capital requirements directive ( crd ) iv. the commission ’ s proposal by mid2011, as envisaged, would provide the european parliament and the council with sufficient time to put the new framework in place by the end of 2012. the ecb annual report highlights our support to the commission ’ s initiative regarding a crisis management and resolution framework for eu financial institutions. the eu clearly needs better tools with well designed triggers to tackle problems in the banking sector more effectively. national regimes should be harmonised as much as possible and arrangements for better coordination between member states in crisis situations need to be devised. the ecb shares the overriding policy objective of the new eu regime to provide a framework within which financial institutions can fail, while at the same time safeguarding the stability of the eu financial system as a whole and minimising public costs and economic disruption. from this perspective, a credible resolution framework that disciplines large and cross - border financial institutions, in particular, is essential. in this context, the setting up of a network of national resolution funds that could evolve, in the medium to long term, to a european resolution fund, is undoubtedly very important. the ecb is also actively contributing to the discussions in the fsb and the g20 to putting in place arrangements that will reduce the systemic risk emanating from so - called global systemically important financial institutions. as regards the new round of the eu - wide stress test, which will be conducted under the aegis of the newly established european banking authority ( eba ), it is designed as a sufficiently severe and rigorous exercise to be credible. it is expected to reduce uncertainty among market participants concerning the health of european banks. let me

, did not show sufficient improvement. another singular factor has been the position of relative strength from which the spanish financial system has faced the crisis. spanish banks continued to pursue a “ traditional ” business model during the entire upturn, focusing on retail financial intermediation. this is certainly the main reason why, as is widely known, the role of spanish intermediaries in the generation, acquisition and financing of toxic assets has proven negligible. as the system ’ s supervisor, the banco de espana also contributed to entrenching this relative strength, through a policy that focused on the cyclical pattern of building up provisions and on the rigorous definition of the scope of consolidation of financial groups. the spanish financial system was thus able to ride the first wave of the crisis – the nature and origin of which, let me remind you, were strictly financial – and readapted its sources of funding to the new market situation. loan securitisation therefore left centre stage to deposits, short - term commercial paper issues and bank resort to the new abundant liquidity provision policy implemented by the ecb for the whole of the eurosystem. nonetheless, the transformation of the financial crisis into a real recession has given rise to a second wave of risks to financial stability, whose nature is this time eminently macroeconomic. the spanish financial system is facing this second wave with the relative advantage of having been less damaged by the first. but that is no guarantee of immunity since the deterioration of the spanish economy exerts pressure, through various channels, on banks ’ and savings banks ’ income statements. i shall discuss this when i turn to the financial system, after having analysed the situation of and outlook for the spanish economy. the spanish economy did not escape unscathed from the global contractionary trends, and in 2008 it underwent a far - reaching adjustment. declines in gdp were evident from the third quarter, leading the economy to post a 0. 7 % fall in output at year - end in terms of its year - onyear rate. this recessionary pattern became more visible in the first quarter of 2009, when gdp decreased at a year - on - year rate of 3 %, while employment was down 6 % on its level a year earlier. as at world level, the improvement since in the latest indicators appears to point to some easing of the contractionary trends. the adjustment of the spanish economy is impacting particularly those domestic spending components which showed the greatest excesses during the long upturn