Good afternoon, honourable Members of Parliament. I appear before this Committee, in accordance with the terms of its summons, in my capacity as former Director General of Regulation and Financial Stability of the Bank of Spain. Firstly, I believe it is necessary to comment on the organisational and institutional environment in which the Bank of Spain operated in those days.
As you know, the Directors General of the Bank of Spain attend, with voice but without vote, two bodies: the Governing Council of the Bank of Spain, which approves the general guidelines for the Bank’s actions and, specifically, the Bank of Spain’s circulars, and the Executive Commission, composed of four members, which executes the institution’s day-to-day operations. Both bodies are chaired by the Governor of the Bank of Spain. The Directorates General, in practical terms, prepared the technical proposals that were submitted for debate.
In this initial address, I intend to cover the following points. Firstly, I would like to provide an analysis of the international financial crisis. I will try not to repeat what has been said by previous speakers and will focus on a couple of aspects of it that, in my opinion, have been addressed in less depth. Secondly, and in relation to the Spanish crisis, I will focus on analysing what happened within the scope of my responsibilities in the years leading up to and during the crisis, with special attention to the accounting sphere. Thirdly, I would like to present some considerations about the banking business model in Spain, which I believe may be interesting for understanding this crisis. Finally, I will conclude with some reflections on the future prospects of the Spanish financial system.
Regarding the international financial crisis, I would like to focus on two elements that, in my opinion, played an important role in the crisis. The first refers to the existing doubts about the scope of the crisis in its early stages and until the collapse of Lehman Brothers in September 2008. Secondly, I would like to comment on some non-banking aspects of the 2007 crisis that have often gone unnoticed.
Allow me to begin by analysing the period from the onset of the crisis in the summer of 2007 until its intensification after the fall of Lehman Brothers and the bailout of AIG. In those days, the terminology used to describe the market situation was “financial turbulence” or “market turmoil.” Let me highlight some statements from that period. For example:
However, the errors in judgment between the summer of 2007 and that of 2008 were not limited to supervisory policy. The ECB, the institution to which all Europeans owe the most for its effective fight against this crisis—let us recall Draghi’s “whatever it takes”—increased interest rates in the summer of 2008 to 4.25%, only to lower them to 1% after the collapse of Lehman Brothers. In fact, it raised them again in April and July 2011 (from 1% to 1.5%) to curb the overheating of the European economy; that is, it increased rates a few months before the sovereign debt crisis erupted in the eurozone. Today, I remind you, rates remain at zero, and there are no signs of economic overheating.
Is this a criticism of how individuals or institutions acted in those days? Absolutely not. If I provide these examples, it is precisely to point out that neither the most privileged minds nor the most prestigious institutions were able to foresee, just a few months prior, the magnitude of what was coming. Neither in 2008, before Lehman, nor in 2011, before the euro crisis. The complexity of interactions between economic and financial agents ultimately generated, de facto, great opacity regarding existing vulnerabilities. Some authors refer to this as radical uncertainty.
Regarding the non-banking elements of the crisis, it is necessary to recall them because, although the solvency and liquidity of banks have been greatly strengthened, the regulation and supervision of the so-called shadow financial system remain, to this day, an unfinished task.
One of the great paradoxes of the current crisis is that the great symbol of the crisis, Lehman Brothers, whose collapse caused the crisis to worsen, and which is usually described as an investment bank, had little of a bank about it, as it neither took deposits nor was it subject to regulation and supervision by the FED, the OCC, or the FDIC (the American bank supervisors). In reality, and in European terminology, US investment banks were what we call securities firms, and they operated under the supervision of the SEC, the equivalent of our CNMV. Incidentally, and like Spanish savings banks, this type of financial entity has disappeared in the US, and the few that have survived do so under a banking license.
Even more paradoxical is the case of AIG, American International Group, an insurance company with a very powerful financial arm that entered the credit default swap market before the crisis. AIG was rescued by the American government in September 2008, despite the enormous technical and political difficulties of doing so. And we should be grateful for that, because we survived Lehman Brothers, but we would not have survived the collapse of AIG. The Armageddon of the 2008 crisis was not a bank, but an insurance company that strayed from traditional business and ventured into markets it did not understand. Added to AIG’s problems were those of the “monoline” insurers, which effectively disappeared with the crisis.
Within this section, we can mention Money Market Funds (MMFs) and the instability they introduced due to the possibility that they might not be able to return the nominal value of investments to participants (“break the buck” in English). Incidentally, the development of MMFs teaches us a lesson regarding the dangers of regulatory arbitrage. Following the 1929 crisis, banks were prohibited from remunerating deposits with interest rates to prevent their speculative use, which led to the development of the industry of funds backed by short-term commercial paper. After several decades, banks issued commercial paper, short-term debt, which was bought by MMFs. The fragility of the system increased, as banks depended on financing from the MMF industry, and this industry offered participants, its investors, a guarantee of value and liquidity that could not be maintained in bad times.
The case of SIVs, or Structured Investment Vehicles, is more complex because, although they were market vehicles not dissimilar to an investment fund, the truth is that they ended up on banks’ balance sheets through the liquidity lines these banks had provided them. But, again, they were not considered part of the banking system; they were market operators. These SIVs, whose consolidation became mandatory, according to international accounting standards after the Parmalat case, remained off banks’ balance sheets in most countries, without me being able to discern the justification for this. The Bank of Spain, interpreting the Accounting Circular but also considering what the IFRS stated, concluded that they should be consolidated, and therefore that banks should allocate capital and provisions for these SIVs if they established them. This action prevented the creation of such off-balance-sheet vehicles in Spain, which played an essential role in the genesis of the international financial crisis, as well as in the opacity and the crisis of distrust and illiquidity they caused, which have been the distinctive features of this crisis.
In light of these considerations, I must also mention what happened in the summer of 2007 in the eurozone interbank market, which completely shut down. The problem was that the so-called originate-to-distribute system led to enormously complex interactions among the various operators. Once the crisis erupted, herd behaviour (where it becomes rational not to do what you think is right, but what you think others will do) disproportionately increased the costs of the crisis. Complexity breeds opacity and generates confusion in times of crisis.
The fact is that, to this day, the interbank market remains inactive, with the ECB having become the main counterparty for European banks. It should be noted that the global retreat of financial globalisation is largely explained by the reversal of banking integration in the eurozone, and this, in turn, by the disappearance of the interbank market.
What is the lesson to be drawn from all this? That we are regulating institutions, not activities, and therefore we must be especially vigilant in monitoring developments in the shadow financial system to curb, through regulation and supervision, regulatory arbitrage before situations arise that jeopardise the system. In my opinion, it is vital to remember this, at this moment, given the development of the shadow financial system and the ongoing digital financial revolution.
Allow me to move on to the Spanish context and, more specifically, to my responsibilities at the Bank of Spain.
As you are probably aware, the competencies of the Directorate General for Regulation have varied over time, although, in simplified terms, they fall into four main areas: solvency regulations (primarily implemented through the Own Funds Circular); accounting regulations (best expressed in successive accounting circulars); financial stability analysis, whose results are published in the Financial Stability Report; and the management and validation of information submitted by supervised entities, including the management of the Bank of Spain’s Credit Register. In addition to these, there are representation functions in the various international forums dedicated to each of the aforementioned areas.
In the case of the competencies of the Directorate General for Regulation, it must be taken into account that this regulatory power was exercised by virtue of various legal authorisations and had an auxiliary, though relevant, character within the legal hierarchy. Thus, in the area of solvency, a string of Directives, Laws, Decrees, and Ministerial Orders preceded the legal hierarchy of the Bank of Spain’s Circular, ultimately enabling the Bank of Spain to develop certain aspects of the regulation. With the emergence of Community Regulations in this matter, this power was further diminished because, as you well know, these are directly applicable in the Member States of the European Union, without requiring national transposition. This scheme is compatible with the fact that many of these proposals originated in the Basel Committee on Banking Supervision, a technical advisory body, or, in the case of accounting, from the IASB, also an international technical body that promulgates International Accounting Standards. Regarding accounting competencies, the Bank of Spain has regulatory power by virtue of the delegation made by the Minister of Economy through a Ministerial Order in 1989. In exercising this competence, the Bank has a long tradition of issuing the well-known Accounting Circular. The arrival of the Community Regulation, which applied IFRS or International Accounting Standards from January 1, 2005, for the consolidated financial statements of groups with instruments traded on financial markets, posed a considerable challenge for the Bank of Spain. In order to prevent Spanish banks from having to endure a duality of accounting criteria, and following the indications contained in the White Paper for Accounting Reform in Spain, Circular 4/2004 was published, which fully adapted banking accounting standards to IFRS, while opting to preserve, by reformulating it, one of the historical hallmarks of our accounting framework, basically, the regime of provisions for insolvencies.
It is worth remembering that, in this process, which involved considerable effort, the Bank of Spain was in permanent dialogue with the authorities involved in the matter and at all times had the collaboration of the ICAC, the Sub-directorate of Financial Legislation of the then Directorate General of the Treasury, and the National Securities Market Commission (CNMV). I will refer to this later.
During my tenure as head of the Directorate General for Regulation and Financial Stability at the Bank of Spain, this Directorate focused on three main areas:
In the area of solvency, the Circular was adapted to successive changes arising from international agreements emanating from the Basel Committee: first Basel II and then Basel III. Broadly speaking, the first of these agreements establishes banks’ minimum capital around three pillars: pillar one, the calculation of Risk-Weighted Assets; pillar two, related to supervisory discretion, which establishes the possibility of setting capital surcharges based on risks not covered in pillar one; and pillar three, market discipline, which introduces transparency criteria on the entity’s risks so that the market can form its own judgment on the bank’s situation. These minimum capital requirements always take the form of eligible own funds divided by Risk-Weighted Assets, and this ratio had to be greater than 8% according to the requirements of Basel I and Basel II. It should be noted that the calculation of own funds includes elements such as shares (core capital or core Tier 1) but also what are called hybrid capital instruments, such as preferred shares or subordinated debt (in jargon, AT1 and Tier2).
In addition, certain asset items, such as intangible assets, are subtracted from this calculation, which are referred to as deductions.
It is obvious that the Circular was only promulgated once the legislative chain of directive, law, and decree had been completed, so I will not reiterate it.
Subsequent to the crisis, experience led to the conclusion that regulation needed to be tightened, not so much in the formula for calculating Risk-Weighted Assets, but above all, in demanding a higher level of capital, which also had to be of higher quality. Counter-cyclical capital buffers and liquidity buffers were also established. This is what we know as Basel III, whose transposition into Community law occurred in 2013, in this case through a Directive and a Regulation, which, for the part covered by the latter, made a Bank of Spain circular unnecessary.
Regarding the Accounting Circular, the key date is 2005, as that year saw the entry into force of the Community Regulation on International Accounting Standards or IFRS. Allow me to elaborate on this aspect.
The accounting powers of the Bank of Spain are not common among central banks. In fact, I believe that, today, only Portugal shares this model, but historically they have constituted one of the pillars, if not the fundamental pillar, upon which the regulation and supervision of banks, savings banks, and cooperatives by the Bank of Spain were based. Of course, the Single Supervisory Mechanism does not have this tool.
The arrival of International Accounting Standards, IFRS, in 2005, greatly complicated the exercise of these accounting powers. Firstly, because they were introduced through a Community regulation and therefore did not allow for a certain degree of adaptation by Member States. They directly entered our regulatory framework. Secondly, because the philosophy of International Accounting Standards is based on offering a true and fair view of the company, which is absolutely contrary to the possibility of presenting results lower than the actual ones, by holding back part of them in the form of reserves or provisions. In this case, the adjective ‘true and fair’ prevails over the adjective ‘prudent’. Thirdly, International Accounting Standards grant managers great discretion in deciding the company’s accounting policy, something that also does not align well with the Bank of Spain’s accounting philosophy, which rewards comparability and homogeneous competitive conditions.
Given the possibility of limiting the application of International Accounting Standards in the banking sector through a Bank of Spain circular much more restrictive than the international standard, some jurists expressed that this action could constitute a fraud on the law. Although this assertion did not turn out to be true, it does give an idea of the challenge posed at that time by the legal and regulatory fit of the Circular and the Regulation of International Accounting Standards. In fact, in some countries, such as Italy, it was decided to abandon supervisory powers over accounting and allow the direct application of IAS in the sub-consolidated and consolidated financial statements of banks.
Another difficulty stemmed from the philosophy of IFRS, that of a true and fair view. International Accounting Standards are designed for investors, whether in fixed income or equities, who invest in securities traded on organised markets. For IFRS, the fundamental thing is for the investor to know the company’s situation at a given moment. They considered that the creation of general provisions was a way to moderate—or conceal—profits. The Bank of Spain’s view was very different. For the Bank, general and statistical provisions constituted a way to improve risk management, as they involved studying the past to determine losses that could statistically be expected in the future. I am sure that this view of IFRS will seem illogical to you, because a prudent policy, such as that proposed by the Bank of Spain, focused on using existing information to accumulate in good times and thus be able to use it in bad times, is essential for good economic management. Not only is it more prudent, but it is also, above all, a better way to measure portfolio risks. But it is the perspective of a true and fair view, of taking a snapshot at a given moment, that prevails in International Accounting Standards, even if this implies greater variability of results throughout the economic cycle. The Bank of Spain had to address these contradictions to maintain the philosophy of prudent valuation in its Circular, which allowed for better measurement of risks, with objective information, so as not to distribute as dividends what were risk premiums, and which facilitated the accumulation of results in good times to use them in bad times.
The third conceptual hurdle was, perhaps, the simplest, because the Circular was not mandatory for consolidated financial statements. Credit institutions could theoretically opt for different accounting options in consolidated financial statements (IFRS) and individual financial statements (Circular), but the confusion that would be generated would be such that, in practice, it was not worthwhile. A single standard, adapted to international standards, offered considerable advantages and spared entities the high cost that would have been incurred by maintaining two accounting regimes simultaneously.
How was this reform of the Accounting Circular approached? The Bank of Spain has published an excellent book on this reform, so I will try to be brief, although I cannot avoid introducing some technical explanations.
Before 2000, the Accounting Circular contemplated two types of provisions. One, called general, was activated with credit growth, so that a cushion was always maintained. This cushion was 1%, 0.5%, and 0% for unsecured risks, secured risks, and public sector risks, respectively. The other, specific, was used for doubtful loans, that is, individual loans that, either due to default (non-performing) or another objective or subjective cause, were impaired. For the latter, provisioning schedules were established, longer for loans with real guarantees.
In 2000, what was then called the statistical provision was introduced. Through parameterisation by loan portfolios (up to six different groups), a feedback loop was established between specific provisions and these, such that this statistical provision increased, filling up in good times when credit grew, and emptying when delinquency increased. In short, provisions were accumulated in good times to be used in bad times. In essence, it was a counter-cyclical provision. From 2000 onwards, therefore, provisions were grouped into general, statistical, and specific.
International Accounting Standards only contemplate provisions for incurred losses. Therefore, they do not allow for the accumulation of provisions for the mere increase in the loan portfolio (hence, the simplicity of general provisions based on mere credit growth prevented any illusion of disguise) nor, let’s be clear, any counter-cyclical provision like the future dynamic provision.
The Bank of Spain’s strategy, which was very aggressive, was to merge the old general provision and the statistical provision into a new counter-cyclical provision. I say very aggressive because in the international accounting world it was thought that, in purity, this solution did not fit within the accounting standard. Those of us who attended international meetings directly experienced these criticisms and also pressures. But the objective of not releasing provisions accumulated in the past and of ensuring that accumulation continued in the future if credit continued to grow, mattered more than accounting purity.
Technically, an attempt was made to thread the camel through the accounting needle by utilising all the loopholes offered by International Accounting Standards, all while respecting, of course, the principle of a true and fair view. Firstly, the possibility contemplated by IFRS of making specific provisions for large homogeneous groups of loans was generously used, with the aim of covering credits already impaired but not yet identified by the bank as such. This is called collective impairment analysis. Secondly, provisions were included in the annex of the circular (annex ix), a resource that approximates the figure of guides or guidances frequently used internationally, although, under the Spanish legal system, the annex was as mandatory as the main body of the standard. Finally, in the face of potential profit mitigation, it was argued that this was better risk management and that the dynamic provision was transparent, so that potential investors in listed bank securities could easily calculate the profit figure without accumulated dynamic provisions, thus respecting the true and fair view principle.
The task was not easy. After all, the parameterisation of the 2000 statistical provision required a correction shortly after its publication. In 2012, the initial decree to cover real estate risk was followed within a few weeks by another to ensure the achievement of the desired objectives. There is no laboratory, no wind tunnel, that guarantees that the initial theoretical parameterisation works in practice. But the desired objectives were achieved: in 2005 as a whole, accumulated provisions were slightly higher than those accumulated in 2004 (with dynamic provisions stabilised between the two years), although in quarterly figures there was a slight decrease in dynamic provisions, as can be seen on page 133 of the aforementioned Bank of Spain book. The importance of having managed to maintain the dynamic provision in the new environment is confirmed by what these provisions represented in 2005: 20 billion euros compared to 4 billion in specific provisions. And by their amount at the end of 2007: 29 billion euros, almost five times more than the 6 billion accumulated in specific provisions. That is, a provision cushion equivalent to 3% of GDP had been accumulated in seven years.
In other appearances, there has been talk of pressures exerted to force a reduction in the level of these new provisions. My succinct summary is that these came, above all, from the accounting and international spheres. I will refer to this later. Of course, the banks were not happy: after all, the provision deducted 30% of their profits, something that did not happen in other countries around us. But I do not recall the pressures from that side being so strong, and I do very well recall the pressure exerted by the accounting world. And although we received clear support from the CNMV and the ICAC, the rest of the official sector, both within and outside Spain, was quite indifferent to our efforts. In short, a feeling of isolation that contrasted with the unconditional support that the Governor and Deputy Governor of the Bank of Spain at the time offered to this initiative. As stated in the aforementioned book.
When parameterising the new provision, the Bank’s objective was to maintain provision levels, that is, not to release provisions unjustifiably from a prudential perspective. The slight decrease in provisions during 2005, though not for the entire year, resulted from limiting the maximum coverage. The aim was to avoid extreme outcomes, such as a bank with a recognised portfolio quality having accumulated provisions that covered seven times its non-performing loans. There was no way to justify such a distortion under IFRS with the information available then. Therefore, that slight decrease within 2005 can be seen as a way to ensure the successful preservation of the counter-cyclical provision in the new IFRS circular.
The approval of this circular, despite strong opposition from the international accounting community, did not end the problems. I vividly recall two meetings where I had to defend the Spanish model: one at the American SEC in July 2007, which was particularly tense at the beginning, and another before the IASB (International Accounting Standards Board) in June 2009. These were two difficult meetings, but their positive outcome allowed the provisions to be maintained until they were needed to cover impairments in credit portfolios.
As for specific provisions, these were modified according to the evolution of the financial environment: simplifying provisioning schedules, recognising real guarantees, then establishing cuts in the value of guarantees based on their nature, shortening schedules, until culminating in the two royal decrees for the clean-up of the financial sector in 2012. Subsequently, modifications were made within the framework of the European bailout, under instructions from the Troika, for example, regarding the transparency of refinanced loans.
In short, the adaptation of the accounting circular to IFRS was a challenge of enormous magnitude, faced almost alone, and which came to a successful conclusion despite the very strong opposition from the international accounting community. It was not a silver bullet, obviously, but the objectives sought—to prevent the loss of provisions accumulated until 2004 and to ensure their future growth—were achieved.
It may now seem that they were insufficient, but the truth is that the Spanish credit system faced the initial stages of the crisis with a cushion of general provisions amounting to 28 billion euros. Very few countries in our environment can say the same.
Allow me to move on to the third section, the lessons to be drawn from the crisis, starting with the business model. I have already described the predominant form of banking model before the crisis in certain countries, the so-called originate-to-distribute model, which created that parallel world, that shadow financial system of off-balance-sheet vehicles, opaque to markets and authorities. This, fortunately, was not the model of Spanish banks, which remained faithful to their “buy and hold” model, that is, assuming credit risk without transferring it to third parties. Our entities were, in some cases, large, sophisticated, and international banks, but they remained “Main Street” banks (as opposed to “Wall Street”), focused on traditional commercial banking, on providing services to their clients, on maturity transformation—that is, on attracting short-term liabilities to lend profitably and securely to families and SMEs.
In the Spanish case, this model exhibits some additional specific characteristics, such as international expansion, which has allowed for geographical diversification that—it must be acknowledged—is the only strategy that has worked during the crisis. And this has been the case because this expansion was carried out through autonomous subsidiaries, without capital, financing, or business dependencies on the parent company, with their own corporate governance structures and subject to local supervision. And, importantly, with a strong common culture of risk analysis and control. Unlike what happened in other countries, large Spanish international banks have been an element of stability for our economy, without which Spain would not have been able to overcome the crisis as it has. I want to emphasise this aspect, because I believe it has not been sufficiently valued. We must not forget that, in the most acute phases of the crisis, the rating of some of our banks was better than that of the Kingdom of Spain, something unheard of in the rest of the world.
Many times I have wondered what would have happened in Spain if our banks had been a source of problems rather than stability, as occurred in other countries. It is conceivable that the crisis would have been even more intense and painful than it already has been, and that we probably would not have overcome it yet. In addition to the stability factor, the banks of the AEB, along with other entities, did not have to be rescued with public money and, moreover, contributed immense financial resources, more than 20 billion euros, mainly through their Deposit Guarantee Fund, to the clean-up of distressed entities.
All of this, as you are well aware, has been far from easy. The sound institutions that have survived have had to dedicate billions of their own resources to cleaning up and restructuring their balance sheets, while simultaneously increasing their capital. AEB banks have devoted more than €200 billion to provisions and write-downs, and have increased their accounting equity by €90 billion. All of this without resorting to public aid. In the midst of this great effort, they have faced, and continue to face, new regulation that is highly demanding and costly, as well as a drastic change in the supervisory system. At the same time that banks were absorbing the losses of the real economy—that is, the loans that households and businesses stopped repaying—the institutions helped their clients adjust their debts and payments to the deterioration of their financial situation.
In general, we can say that our banking model has weathered the crisis well, although not all commercial banks have shown the same strength. In fact, the commercial banking model did not prevent some institutions in Spain from failing and disappearing. Therefore, the quality of management is, ultimately, the first barrier against problems in the banking business. The commercial model does not shield against certain behaviors, such as some that were seen before the crisis: mortgage monoculture, concentration of risks in the real estate sector, or excessive growth in credit risk, spurred by the entry of a large number of competitors into new markets. All of this was caused or stimulated by a lax global macroeconomic environment, deficient corporate governance and, in some cases, unclear ownership structures. That is why, in the Troika’s partial rescue program, one of the key points was the reform of savings banks, which were required to transform into banks, thereby improving their governance systems and, equally important, providing them with greater flexibility to increase their equity.
Finally, allow me to present some of the conclusions that, from my point of view, could be drawn from everything discussed. The first could be that our commercial banking model, focused on accompanying our clients throughout their life cycle and helping them achieve their objectives by providing them with the financial services they need, is the appropriate one. And the same can be said of international activity, carried out through subsidiaries that finance themselves independently of the parent company and replicate that commercial model in their destination countries.
The second is that we must avoid at all costs the recurrence of inappropriate developments around the originate-to-distribute model. That has been, among others, one of the objectives of the regulation implemented after the crisis. However, it is paradoxical that the new regulation is introducing incentives for regulatory arbitrage—that is, the displacement of activity from banks to the shadow financial system—and this is because the new rules are directed at entities (banks, insurance companies, etc.), and not at types of operations (short-term liability funding that finances long-term credit risk). The problem with this displacement is not only one of competition—nothing to say if it is fair and on equal terms—nor of the relative unfair treatment it represents for banks. The key question is whether risks of financial instability are increasing, including the probability of another systemic crisis, due to the emergence of pseudo-banks outside the regulatory perimeter. Or whether customer protection problems may arise from these new intermediaries—that is, whether capital arbitrage can be accompanied by arbitrage of financial customer protection rules. It is still too early to provide an answer, with regulatory reform recently completed and still in the implementation phase. But it is contradictory that we are creating ultra-safe banks at the cost of displacing risks to parts of the financial system that we neither see nor control.
The third conclusion refers to the fact that no business model is 100% safe from potential problems, although the Spanish commercial banking model based on long-term relationships with clients offers lower risk than others. It is therefore advisable not to become complacent and to commit to professional, correct, and appropriate management, driven by best corporate governance practices, financial education, and the establishment of an adequate, effective banking culture that extends to all levels of the organization.
Allow me to complete this initial statement by recalling that during my tenure as Director General, I chaired a significant number of international bodies and forums, which represented an extra workload but also a source of great satisfaction. I refer to the Financial Action Task Force on money laundering (FATF), the now-defunct Banking Advisory Committee of the European Union, the CEBS (Committee of European Banking Supervisors), the predecessor body to the EBA, the Joint Forum (joint forum of the Basel Committee, IOSCO, and the International Association of Insurance Supervisors or IAIS), and the Standards Implementation Group of the Basel Committee.
Regarding this representation work in international forums, the central idea was to improve coordination among supervisors, whether in banking, or in banking, securities and insurance, or at the regional level in Europe. In the European case, we sought to advance what we called a common supervisory culture in the European Union. The Single Supervisory Mechanism or SSM is the culmination of all that effort, and the fact that, thirteen years after the launch of the CEBS, supervisory practices have still not been fully harmonized is a clear indication of how complex that task was.
It is not easy to navigate the international arena, as one frequently faces pressures and misunderstandings, such as those mentioned regarding the reform of the accounting circular. The purely autarkic view of professionals who, due to age or profile, have not had the opportunity for these interactions with Europe and the international supervisory world, can lead to the creation of illusions that make one believe that integration movements can be ignored. Let me emphasize that these are illusions, and that outside Europe there is simply no future. Highlighting the strengths of our regulatory and supervisory model is not easy, I assure you, although it has them, such as the importance of financial statements and asset valuation as the raw material on which bank solvency is built. This is not achieved by turning one’s back on that international world, by ignoring it.
Thank you very much for your attention, and I remain at your disposal for any questions or clarifications you wish to ask.
José María Roldán, Chairman of the Spanish Banking Association
