The weakness of bank lending over the recent past has motivated much discussion on the reasons behind this and on the best policies to deal with the situation. In order to define these best policy measures, it is important first to fully understand the behaviour of this phenomenon and to identify possible frictions in the credit market that may be hampering its recovery. With this in mind, I will next provide an overview of the main factors explaining recent credit developments in Spain: first, in the context of the crisis period, and then in the current recovery phase. I will conclude with some reflections on possible policy considerations. 2. The determinants of bank credit in Spain during the crisis  When analysing the factors behind the contraction of bank lending during the crisis it is useful to distinguish between demand and supply elements, even after discounting the practical difficulties in separating both components. 2.1. Demand-side factors  Starting with the demand side, several factors contributed to the sharp reduction in the demand for credit during the crisis. First, loan demand fell sharply as a result of the deterioration in economic conditions, which limited current and planned spending levels and, hence, the need for new credit. Second, the need of households and non-financial corporations to deleverage and rebuild a sounder financial position is another factor behind the pronounced slowdown in credit demand.
Financial institutions, such as those represented here, with a mandate to promote access to financing for SMEs, can make an important contribution in this field. In any case, it is also necessary to study ways to tackle directly the asymmetric information problems faced by these firms. This in turn requires enhancing the quality and quantity of information available on both the credit track record and the financial situation of companies. In this regard, it is worth mentioning a new regulation recently approved in Spain that obliges banks, under certain conditions, to pre-announce three months in advance should they decide not to roll over existing credit lines or loans at maturity. Also, in those cases banks are obliged to provide relevant information on the credit profile of their customers whose loans are not rolled over. The Banco de España, in response to the mandate conferred to it under this new regulation, is currently working on a Circular, which will specify the relevant information to be  BIS central bankers’ speeches  3  provided to the SMEs in these circumstances, together with a methodology to produce a standardised report on the SME credit assessment. Other actions that could also help mitigate the possible frictions in the credit market during crisis periods include those facilitating debt restructuring by improving the bankruptcy legislation. These measures, if well-designed, could help to smooth the reallocation of resources from non-viable firms to viable and productive firms.