strict governance arrangements have been set for conducting the analysis, so as to provide for the consistency of the work performed by the national authorities in each jurisdiction. in this way, although the exercise will be carried out in a decentralised fashion, a significant central structure – with the involvement of external advisers – has been set up to ensure the maximum possible degree of uniformity. evidently, it is a complex exercise posing numerous organisational challenges, and which must be performed with the utmost rigour to meet the objectives set and, above all, to ensure the comparability of the results obtained for each bank in each jurisdiction. naturally, since the exercise aims primarily to strengthen confidence in the european banking sector, it is vital that the european authorities should determine as soon as possible the formula to be used to cover the potential capital needs arising from the exercise, for those banks that cannot do so through their own means. single resolution mechanism yet if, as i said at the outset, we want to put an end to the current market fragmentation and to bank liabilities being valued differently depending on their location, the unified supervision of banks is not enough. these liabilities also need to be treated similarly – irrespective of the jurisdiction under which they fall – if banks experience acute solvency problems. thus, the banking union requires, as indicated by various authors in the issue of papeles de economia espanola presented today, the adoption of a single resolution mechanism for non - viable institutions. in the past, supervisory authorities responded to banks ’ solvency problems following the principle of constructive ambiguity. hence, except for guaranteed deposits, there was no specific legal framework for the treatment of banks ’ liabilities, should a bank experience solvency problems, aside from commercial law provisions on insolvency. however, to prevent the undesired systemic effects of a disorderly bankruptcy of a bank, public authorities have traditionally used discretionary power to protect holders of bank liabilities ( mainly deposits and debt ) through capital injections so as to avoid the winding - up of these institutions. one of the lessons of recent crises is that the principle of constructive ambiguity has become considerably weaker. public authorities – at least in europe – have tended to come to the aid of weak institutions, thus confirming the existence of an implicit guarantee for banks ’ liabilities. this guarantee distorts the incentive system for the managers of banks and for their creditors, generating considerable costs for the public finances of the countries concerned. a key

given to the borrower before signing is regulated, and the customer ’ s right to advice from the notary public is indicated. it is also sought to avoid certain perverse incentives. limits have been set on the remuneration policy for staff who evaluate solvency and market the loans, with a further requirement that such staff should have certified minimum knowledge in this field. in protecting customers by ensuring that qualified staff inform them of all details sufficiently in advance, that the contractual clauses applied are clear and comprehensible, that the product is actually suited to their needs and that there are no hidden costs, the law is in fact conducive to legal certainty and significantly reduces the risks of litigiousness. i have previously stated that customer protection, far from disadvantaging banks ’ functioning and profitability, is a core element of any viable and sustainable bank business model in the long term. in economic terms, the cost of litigiousness and its terrible effect on the entire sector ’ s reputation clearly far outweigh any hypothetical benefit that individual banks could have obtained through controversial practices. that leads me to the second feature i referred to previously, namely the oversight of conduct, and the consideration of conduct risk within the prudential regulatory framework and the business model with customers. non - financial risk the regulation of bank conduct follows a mixed approach in spain. the cnmv ( national securities market commission ), the directorate general for insurance and we at the banco de espana have competencies within our sphere of influence, although on assigning them regard is had to the type of product marketed, and not to the usual criterion of type of institution. on an ongoing basis, the banco de espana exercises surveillance over and inspects transparency and bank customer protection. as indicated in the latest annual claims report, further to this oversight 6 disciplinary proceedings were initiated in 2019 against different banks, and 58 requirements and 31 written observations and recommendations were made. 3 / 6 bis central bankers'speeches indeed, both the requirements and the written notifications are, per se, supervisory actions, a fact often forgotten as the focus is solely on fines. our institutions ’ conduct department has been tasked with defining the supervisory policy for and the exercise of oversight in respect of conduct. however, from the prudential supervision standpoint, conduct risk is also evaluated, with everincreasing attention. conceptually, this risk comes under non - financial or operational risk which, since basel ii was approved,