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.

##uate. i think that under basel ii, in the context of a more efficient and sound financial system, fluctuations will occur around a superior trend. this superior trend represents a better relationship between the capacity of the economy to absorb risks and the ability of the banking system to provide credit. furthermore, one cause of pro - cyclical behaviour is low capitalisation and weak risk management. undercapitalised banks will tend to make abrupt decisions to cut lending when there is news of a downturn, and banks which have not assessed risks properly may likewise be forced to react abruptly. pillar 2 of basel ii requires banks to have a capital strategy that takes into consideration the fluctuations of capital through the cycle and to hold additional buffers of capital that will help to offset potential problems. basel ii ’ s more forward - looking approach to granting credit introduces “ risk awareness ” and “ early detection ” factors that will provide additional defence against credit disruptions and procyclicality. i also believe that when banks have the right incentives to manage their risks appropriately, to hold sufficient capital and to improve transparency, the banking system will become more resilient, more stable and better able to serve as a source for credit and growth nonetheless, the committee recognises that any risk - sensitive capital framework will cause the minimum capital requirement to fluctuate for the same exposure if a borrower ’ s creditworthiness strengthens or weakens. to mitigate excessively wide swings in capital requirements, the new framework incorporates a number of elements such as the requirement to use longer time horizons in the design of internal rating systems and in the average calculations of key variables, and also the need to carry out stress tests and conduct calculations in downturn conditions. all these elements will ensure that bank managers are conscious of how risk - drivers change through the cycle and in stress conditions, and that they incorporate these elements into their decision - taking processes and capital strategies. let me add a final comment to this important issue. it is clear to me that we could also do more, beyond the strict solvency standards, and study how other regulations, such as those related to provisioning, can contribute to reducing pro - cyclicality. 7. basel ii impact on global competition. another broad concern that the committee has worked to address is basel ii ’ s impact on global competition. in particular, some have asked whether banks that choose basel ii ’ s advanced approaches will enjoy benefits over those that choose simpler approaches or remain on the 1988 accord. basel ii