Consumption needs to be less dependent on perceived wealth gains, and investment to be more diversified, well beyond the construction sector. This will make participation rates more sustained. For what concerns the Spanish financial sector, it has long been a source of strength and national pride for this country. In many respects, Spain can be a leading example for global financial reform. I will say more on this later in my talk. Spain’s financial system has proved resilient to the shock in the early stage of the crisis. Supported by prudent regulation and supervision, the banking system in this country has built dynamic provisioning cushions during good times. And the traditional role of banking, founded on long-term relationships with customers, has largely been preserved. Looking forward, this is an important asset. But a solid future calls for some areas of adjustment in the way the financial industry behaves. The exceptional support of public policies will, at some point, have to be withdrawn. Private sector confidence in the future will need to replace policy intervention as the main spur of growth. The Asociación de Mercados Financieros and its members are an important link in the chain through which confidence will build and transmit to your customers. The obvious prescription for a sustainable return to stability is for many of you to simply look back at your past of prudent and sound management.
This weakened incentives to conduct prudent screening and a thorough monitoring of loan quality. Credit became plentiful and market liquidity expanded at a pace that could ultimately no longer be justified. Looking ahead, three steps will be required to a more resilient system. •  First, the tendency for finance to become pro-cyclical even at a system-wide level needs to be strongly mitigated. The quality and quantity of bank capital and their liquidity buffers have to be improved in good times to provide a sufficient buffer for bank equity when the cycle turns. The cyclicality of market economies is inevitable. But the financial system should not be allowed to amplify swings. •  Second, the transparency of the financial structures needs to be enhanced. Informed decisions by market agents are a key element of market economies. Lack of transparency of financial products masked abuse and led to disaster. Looking into the future, all institutions, instruments and markets of any relevance for systemic stability need to enhance risk disclosure. •  Third, once more, incentives need to be aligned. Market participants – traders, loan managers, risk committees and boards of directors – were given strong economic incentives to focus on short-term profits. Long-term value creation was not a concern in the pre-crisis world. Collectively, this has resulted in excessive risk taking. A reform of the executive compensation schemes and practices is an essential part of our effort to secure financial stability. At the financial level, reform in Europe will follow a two-pronged approach.