Fernando Restoy: Bank credit developments in Spain Speech by Mr Fernando Restoy, Deputy Governor of the Bank of Spain, at the European Association of Public Banks (EAPB) Annual Congress, Barcelona, 10 November 2015. * 1. *  *  Introduction  Good morning everyone. It is a pleasure for me to be here today participating in the Annual Congress of the European Association of Public Banks, which is being held this year in Barcelona. Allow me to thank the organisers and, in particular, the Institut Català de Finances and its CEO, Josep-Ramon Sanromà, for his kind invitation. I will focus my remarks on the developments in bank credit in Spain during the recent crisis and the current recovery. I really cannot think of a more qualified audience to share my reflections on these issues, given the active role played by national promotional banks in the recent crisis in facilitating the flow of credit. As is well known, bank credit flows have contracted markedly in many advanced countries over much of the recent crisis. In Spain, the outstanding amount of bank lending to households and firms has been decreasing, in real terms, since 2009. The current process of deleveraging marks the sharpest contraction in bank credit in this country since the 1980s. The persistency of the adjustment of the stock of credit is likewise remarkable. In particular, even after emerging from the last recession in mid-2013, the outstanding stock of credit has continued contracting, albeit at a rate that has moderated significantly in recent times.
To address some of these problems, the European Commission has recently published an interesting proposal for amending the European regulation on prudential requirements for credit institutions and investment firms that introduces a differentiated treatment for high quality securitisations that meet stringent standards in terms of simplicity, transparency and standardization. 5. Concluding remarks  Let me now conclude by highlighting what I think are the main lessons drawn from the recent crisis in connection with credit developments. First, it seems clear that given the large financial imbalances that emerged during the expansionary years, a protracted contraction in credit demand seems not only unavoidable but also positive to restore the ability of the economy to grow on a sustainable basis. Yet there is little doubt that frictions on the supply side amplified the contractionary effects of weak demand and that those frictions merit bold policy attention. In any case, policy interventions aimed at revitalising credit during a crisis should be carefully designed and calibrated, duly taking into account that credit flows should not be expected to fully recover until lenders’ and borrowers’ balance sheets are on sufficiently firm ground. In the case of Spain, some of the main constraints affecting credit developments for most of the recent crisis have abated considerably as a result of the improvement in the macroeconomic outlook, the bold banking sector reform and the introduction of various measures at both the national and European level.