On the other hand, with limited proprietary positions, banks generally emerged from a summer of stress unscathed. Certainly, no one wants to return to the days when major dealers’ trading books were crushed under the weight of worthless leveraged super senior debt. To strike a balance between making banks safer and maintaining adequate market liquidity, we need to draw lessons from the financial crisis, when contagion from stressed banks spread rapidly through the global financial system via counterparty credit concerns, liquidity hoarding and mass deleveraging. In this environment, core funding and OTC derivative markets seized up and conditions were set for the panic that ensued. By contrast, markets with greater transparency and more robust trading and settlement infrastructure, such as equity markets and exchange-traded futures and options, performed rather better. Prices were not always to participants’ liking, but these markets remained open. London should lead the way in ensuring that fixed income and derivative markets meet such standards. At the FSB, the Bank of England is helping to devise reforms that increase transparency, build more robust infrastructure and encourage better collateral management. Since collateral management is a cornerstone of resilient markets and goes to the heart of central banking, let me take a few minutes to expand on it.8 Collateral reduces credit risk between market participants and supports market-based sources of credit to the real economy. It is central to the functioning of OTC derivatives markets and the funding of the shadow banking system.
In terms of the financial account, the resident sectors’ improved terms of access to external funding from 2013 enabled the outflow of funds from the rest of the world at the height of the euro area sovereign debt crisis to be reversed. The progressive normalisation of the euro area’s capital markets, as from the final stretch of 2012, significantly reduced the need for Spanish credit institutions to finance themselves through the central bank. Subsequently, the abundant liquidity resulting from the ECB’s quantitative easing measures has once again given rise to net fund outflows in the Spanish economy. These have, however, come about in a very different way to those resulting from the 2012 balance of payments crisis. Indeed, net fund outflows are not, as was then the case, the outcome of a worsening in economic sentiment regarding the Spanish economy. They are rather the result of a redistribution between institutions and countries of the abundant liquidity injected by the Eurosystem. As to instruments, the funding raised abroad in the most recent phase has preferentially taken the form of stable flows, such as foreign direct investment, equity and investment fund shares, and long-term government debt securities. This composition reveals international investors’ confidence in our economy, to which the structural gains in competitiveness and the recovery in output and domestic demand have been conducive. In the specific case of foreign direct investment in Spain, these flows have accounted for around 2.6% of annual average GDP in the 2013-2019 period.