In the published accounts it will be deducted from the book value of the credit items that produce it. It is not considered a reserve to be integrated in the regulatory own funds. The annual accounts shall report the various solvency provisions (or value adjustments), and their method of computation. The statistical provision is not a tax-deductible expense although banks can use an asset account of anticipated taxes (i.e. the impact on the profit and loss is neutral but still negative in terms of cash flows). Finally, given the considerable internationalisation of our banking system in recent years, it is important to keep in mind that the statistical provision is required on an individual level of all the members of a consolidated banking group. It is not possible to counter a positive statistical provision requirement in one bank with a negative one in another bank of the same group. This individual bank approach reinforces the statistical provision requirement and squares well with the fact that expected losses arise at an individual bank portfolio level. By now, you are probably wondering about the real impact of the statistical provision in the Spanish banking system. As far as the profit and loss account is concerned, the statistical provision for depository institutions represents around 12% of 2001 total operating margin. At the end of 2000 the statistical fund reached 15% of its maximum amount (remember there is a cap of three times the latent risk) and at the end of 2001 it stands at 27%.
The argument would be that deflating an asset price bubble at an early stage contributes “per se” to long-term financial and monetary stability. Against this view, I tend to share the position of those arguing that asset price bubbles are very difficult to identify in practice and, even assuming that they were correctly recognised, there is a lot of uncertainty as to how asset markets would react to policy changes. Furthermore, this strategy may prove difficult to communicate to the public. As concerns financial policy, the regulators’ task of ensuring the long-term soundness of the financial system entails creating the right incentives for market participants not reacting in excess in a given cyclical position and avoiding excessive misalignments. To this end it is essential, first, to encourage better knowledge of the risks assumed, a long-term orientation to analyses and, consequently, more prudent management within financial institutions. Second, a greater heterogeneity among financial market players to avoid mimetic behaviour seems desirable, although this is something the markets would normally develop by themselves. Third, greater transparency and disclosure by the authorities and private institutions would help market participants to focus on fundamentals. Fourth, a better understanding and evaluation of liquidity patterns in financial markets is called for, on the part of both market participants and supervisors. Finally, the regulatory authorities should obviously not introduce rules promoting short-term strategies. Let me focus now on the relationship between bank credit, loan losses and provisions for loan losses.