On one hand, because, despite the fact that the rate of increase of doubtful assets has eased, the setting aside of provisions for impairment will continue to weigh down profits. And on the other, because the narrowing of the net interest margin resulting from higher financial costs will hardly be offset by bigger volumes of activity. Accordingly, reducing overheads, which must be quickly and resolutely done, is the main instrument for softening these adverse effects on profits. Spain and the Spanish banking system need their creditors to roll over the funding they have extended to them. The best way of achieving this is to demonstrate day by day that banks and savings banks are healthy and profitable, and that their profit and loss accounts provide them with the flow of funds needed to honour all their commitments. Conclusions I shall conclude by reiterating the central idea in my speech. The government has already taken various measures in the right direction. What is important now is to persevere along these lines, adhering to two underlying principles: budgetary austerity that provides for fiscal consolidation, and structural reforms. As regards the banking sector, those responsible for its supervision and regulation, and most importantly the institutions comprising the sector, must complete the restructuring under way. 6  BIS Review 161/2010  There can be no room for wavering, as that can only give rise to interpretations that undermine our creditors’ confidence. In sum, the reforms in train must be seen through, so as to cement international investors’ confidence. Thank you.
In striving for clarity, the merged groups should place particular emphasis on explaining clearly and transparently how they have treated potentially impaired assets in the mergers. They should offer not only quantitative information but also explanations so that this information is interpreted correctly. –  Second, banks should continue resorting to international markets to roll over their wholesale funding. As stated, the loan from the Eurosystem has progressively declined and institutions should persevere along these lines. It is vital to remain active in euro interbank markets, to participate in the central counterparty clearing houses and to resort to the primary markets and, insofar as the latter allow them, to extend the average maturities on their funding. BIS Review 161/2010  5  But they must also report to investors that business is as normal. The regular supplementary information I referred to in the previous point should include a section that reports on the status of wholesale funding, with a breakdown of instruments, the corresponding collateral and their duration. –  Third, perseverance in the mergers under way, particularly in the savings bank sector, is vital. The progress to date has been most significant and institutions are meeting the deadlines. But further progress in this connection is needed, and there must be no wavering in the integration plans agreed upon. This phase foresees creating the new institutions and setting out the terms of their governance.