In the case of the ECB, this took the form, among other initiatives, of its decision in October 2008 to extend its commitment to satisfy all demands for liquidity at a fixed rate with full allotment, in such amounts as necessary, and at least until the beginning of 2010. These actions of central banks have been complemented by others by governments, which have set up guarantee systems for the debt issues of financial institutions so that the latter can access the wholesale funding markets, which had been closed even to institutions with the best credit ratings. This type of measure, which averted a total collapse of the financial system, enabled certain markets to show signs of a slight improvement in relation to their situation in September 2008. Such is the case, for example, of the money markets, where there has been a slight correction of risk premia. The public-sector guarantees for financial institutions’ issues boosted the volumes issued on primary fixed-income markets. BIS Review 52/2009  1  However, as mentioned above, normality has not returned to the markets where institutions are looking for funding, and difficulties persist in terms of amounts, prices and maturities. Some of those markets, which had played a very important role prior to the summer of 2007, simply remain closed. This applies, for example, to securitisation and mortgage covered bond markets. There is no doubt that this poses a difficult challenge for credit institutions previously used to practically unlimited liquidity.
Higher bad debts mean higher specific provisions, which, however, were partly offset by general provisions, since some institutions began to use the provision which had been set up for this purpose at a favourable time in the business cycle. In addition, the rise in loan loss provisions was because some institutions decided to increase their provisions to help them face this more uncertain and troubled period, since the system in place in Spain sets an obligatory minimum but permits larger amounts to be set aside when there are signs of problems. In short, analysis of the data for 2008 shows that, although the results of Spanish institutions compare favourably with those of their counterparts in banking systems in other developed countries, income statements have begun to come under downward pressure. This situation, which may persist in the medium-term, is due to a broad range of factors mentioned earlier: narrower net interest margins, smaller fees, lower gains on financial transactions and higher loan loss provisions. Given this complex situation, what courses of action are available? First, it does not now seem reasonable to expect that the narrowing of margins can be offset by increased volumes of activity. Banking activity, particularly lending, has gone from growth rates of more than twice nominal GDP growth before the crisis to rates currently around 5%. It cannot be ruled out that the slowdown of this variable will continue, or even that it will record zero or negative growth rates.