BIS Review 68/2004  3  Crisis management No matter how good we are at overseeing the financial system - and how well we succeed in making it more robust without losing too much efficiency - it is impossible to completely eliminate the occurrence of crises. We therefore need to be prepared to manage a crisis if one should nevertheless occur. If a crisis occurs, it is necessary to assess the scope and consequences as quickly as possible and to take the right measures to reduce the potential problems. We do not want a repeat of the dilemma faced by the Riksdag in 1992. The Riksbank can provide emergency liquidity assistance to a bank suffering problems. The requirements for this are that the problems are so serious as to threaten the stability of the system and that the bank is sufficiently sound to be able to survive in the long term if given assistance now. In other cases, the Riksdag decides whether or not financial support should be given, as tax-payers may be affected. One difficulty is determining whether a bank fulfils these requirements in a crisis situation, when there is often considerable confusion and everything happens so quickly. By being well-prepared we have the possibility to decide whether or not a bank should receive assistance from us. The enormous flows in the payment system mean that all banks are dependent on being able to receive incoming payments in order to send their own outgoing payments.
This process has, in the past five years, notably improved the sector’s position in terms of basic metrics such as asset quality and profitability and solvency levels. This has come about against the background of the correction of structural imbalances, built up on bank balance sheets during the pre-crisis upturn. Arguably, the cause and, largely, the effect of the formation of these imbalances was excess capacity in the development of Spanish deposit institutions’ business. 3/15  We can observe the scale of the adjustment that has come about, both in the volume of banking activity and in the total volume of lending to the resident private sector. From its June 2009 peak, when the stock of lending practically amounted to € trillion, to the present day there has been a reduction of almost 40% in volume, i.e. of over € billion. In terms of GDP we have moved into line with the European average. Also, the excessive dependence on external financing has been corrected; specifically, the Spanish economy’s net debtor position has declined from accounting for almost 100% of GDP in 2014 to 77.1% of GDP in 2018. The consolidation process, which began in 2009, has entailed a reduction of more than 30% in the number of institutions. The most striking impact has been on the former savings banks, of which only two have survived, although another seven have converted into banks.