In other words, according to the exercise, the balance sheets published by Spanish banks reflect, on average, the risks arising from their investment with greater rigour than that seen in the other jurisdictions, with fewer valuation flaws or provisioning shortfalls being detected as a result. This is a particularly positive outcome as it arises from the application of a methodology – common to all the banks analysed – based on objective observations and which, unlike the stress test, does not depend on the design of debatable macroeconomic scenarios or working hypotheses. In any event, the stress test also provides positive results for the Spanish banking sector which, in virtually all cases, exceeds fairly comfortably the minimum capital thresholds set. Only one bank evidenced a very small capital shortfall as at 31 December 2013, and this has now been more than covered following the capital increase made by the bank in the first half of 2014, which gives it a solvency level in line with the sector average. Accordingly, Spanish banks may be said to have comfortably passed the test, evidencing both high quality of disclosed financial information and considerable resilience to adverse macroeconomic developments. Naturally, there is no room for complacency, and the results should not be taken as conclusive proof of the unquestionable and generalised health of our banks. The challenges are manifold, and I shall refer to some of them later.
The capital shortfalls identified in the 2012 stress tests were corrected by recapitalisation measures that combined capital increases at some banks, burdensharing mechanisms and the contribution of public funds in eight banking groups that were unable to cover their needs by their own means. More recently, an appreciable number of banks have taken advantage of improved market conditions to issue various capital instruments (for an amount of over € billion since the start of the year). Moreover, banks have generally pursued a policy of containing dividend payouts and returns on deposits, following the recommendations made by the Banco de España. 2. The second main flaw in our financial system was a disproportionate exposure to assets with highly pro-cyclical credit quality and, in particular, to the real estate sector. This vulnerability was corrected through two main channels: by increasing the volume of development risk provisioning required in 2012 and, of course, by establishing SAREB, the external asset management company to which all the real estate exposure of the most vulnerable institutions was transferred. More recently, the level of coverage of credit portfolio risk was reinforced by the review, by the Banco de España, of the criteria for classifying refinanced and restructured loans by risk and, therefore, of the level of provisioning required. All these steps, on top of the traditionally conservative provisioning policies followed in Spain, reduced the latent risk on balance sheets and increased coverage, and are largely responsible for the Spanish banking sector’s generally satisfactory results in the asset quality review. 3.