Luis M Linde: New challenges for a new era Speech by Mr Luis M Linde, Governor of the Bank of Spain, at the 8th Santander International Banking Conference, Madrid, 26 November 2015. * 1. *  *  Introduction  Good morning. First, I would like to thank Banco Santander for inviting me to participate in this new edition of your International Banking Conference. The first edition took place in the autumn of 2008, right after the fall of Lehman Brothers and just before the G20 leaders agreed to launch the financial regulatory reform in an unprecedented globally coordinated action. The objective was clear and so was the mandate given to the Financial Stability Board and the Basel Committee on Banking Supervision: to build a stronger and more resilient financial system. Since then, the main pillars of the reform have been put in place. The list of new measures implemented is long and, I would say, impressive. I will not review the list, which is very clearly and well explained in the latest progress reports published by the Financial Stability Board and the Basel Committee. I will focus my remarks on three different aspects of the global post-crisis reform that I find particularly relevant for the topic of this Conference:   First of all, the finalisation, next year, of the Basel III framework.   Second, the new total-loss-absorbing-capacity (TLAC) standard, developed by the Financial Stability Board and recently endorsed by the G20 leaders.
The credit cycle and monetary policy The knock on effects of defaults in the US sub prime market and the impact of big investors on asset prices are factors we need to assess not just in trying to understand the financial sector and the stresses it faces but in gauging the state of the economy more widely. The story of the sub prime market illustrates a wider point. In traditional banking markets in the past there has been an observable tendency for banks to overshoot both in offering credit at the top of the cycle and retrenching afterwards. That feeds through into asset prices and can have an impact on the wider economy. Despite the sophistication of the new capital markets, a very traditional cycle seems to have been alive and kicking in sub prime. 3  The definition of the official sector in the US Treasury survey also includes public bodies such as oil stabilisation funds. 4  See ‘International capital flows and US interest rates’, NBER working paper 12560, October 2006. 6  BIS Review 84/2007  A similar story could be told about the credit card and other unsecured lending over the last few years. The growth rate rose in the late 90s until defaults began to build up over the last 2 years and the banks and other lenders tightened up terms and conditions sharply (Chart 13). The path of commercial property prices in recent years suggests the same has been happening there (Chart 14).