jose manuel gonzalez - paramo : how will historians judge our handling of this crisis? speech by mr jose manuel gonzalez - paramo, member of the executive board of the european central bank, in the occasion of the presentation of the book titled “ un siglo de historia del sistema financiero espanol ”, bank of spain, madrid, 10 june 2011. * * * ladies and gentlemen, it is a great pleasure to have the opportunity to speak today at the bank of spain about the spanish financial sector. the book being presented today consists of a distinguished collection of essays providing a wealth of information on spain ’ s financial sector over the last century. not only does it summarise the key data and the main developments, but it also provides deep analyses. it will definitely become the work of reference on the history of the financial sector in this country in the 20th century. let me then congratulate the contributors and the editors, jose luis malo de molina and pablo martin acena for their excellent work. reading the book, notably the chapter by raimundo poveda, we can draw some interesting parallels between the current crisis and the banking crisis in the late 1970s and early 1980s. in particular, given the current circumstances, the main message i would like to emphasise today is that certain changes in the banking sector that are implemented in response to crises are essential to guarantee a strong, robust banking sector in the future. in other words, the implementation of reforms and changes in the banking sector after a banking crisis – in respect of business practices, regulation and supervision – has the potential to strengthen the foundations of the banking sector, thereby improving its ability to contribute to sustainable economic growth. given the limited time that i have, i will focus on some key structural developments in the banking sector that have taken place over the past twenty years and that are described and analysed in several chapters of the book. in addition, i will examine how the regulations introduced by the bank of spain during the boom years helped to prevent and mitigate the negative effects of the crisis and, especially, how some of the reforms and structural changes that are currently being considered may substantially reduce the fragilities of the banking sector. if implemented, they will strengthen the banking system and ultimately have positive effects on financial stability and economic growth in spain. some reflections on banking developments during the last two decades as i see it, spain ’ s banking sector has undergone two fundamental changes since 1990 : banking

mandate which regulates our responsibilities as the operational manager of the fund. the fund has important distinguishing characteristics which form the basis for the investment strategy. the most important are its size and long - term investment horizon. our potential to achieve results as an investor lies in turning these factors to the fund ’ s benefit through active strategies, and our most important advantage is the possibility of implementing these strategies at low cost. our owner expects added value from active ownership. it is important that large institutional investors such as norges bank exercise their rights as minority shareholders. in our dealings with companies, our legitimacy and influence depend on us being seen as a long - term investor pursuing financial interests. it is clear to me that the quality of the investment management organisation can only be ensured by pursuing excellence in all parts of the investment activities. to build an organisation which aims to be average will only assure mediocrity. the financial crisis revealed that many institutions based their strategies on short - term funding. when credit was no longer available, many business models collapsed. heavy losses were passed on to owners and investors. the situation for savings in the fund is different. we have had to record losses on equity investments and active credit investments. however, the fund has no traditional liability side and liquidity risk is low. the growing risks in the market did not force us to make changes that would have resulted in huge realised losses for our owners. the final results of our strategies through the troubled waters of the financial crisis cannot be deduced from the quarterly results at the peak of the crisis. actually, the fund has spent the last few quarters increasing its ownership in companies worldwide. as for credit, values are not lost as long as borrowers fulfil their obligations. the fund is prepared to retain ownership of its illiquid investments until they mature in a few years time. moreover, unless the economic outlook goes from bad to considerably worse, the fund will record a substantial excess return in years ahead from holding on to assets that the market has priced down due to a collapse in liquidity and fear. in fact, as the global economy seems to be stabilising, this effect is already evident. let me conclude by underlining the topic of this conference : “ investing for the long run ”. the fund is a long - term savings plan and capable of riding out large swings in the markets. this is the very foundation of the investment strategy. our ability to adhere to this strategy in a critical phase – even if this should last