A partial representation of the economic structure can only partially help in monetary policy decision-making, notably in real time. For instance, it is very difficult to find empirical models that allow for an integral view of both non-financial (‘real’) and monetary-financial phenomena. So, it may be impossible to arrive at a convincing explanation of the origin and propagation of a significant financial shock, say, on the basis of sets of equations that do not elaborate on the role of the financial sector or account for only tenuous links between that sector and the rest of the economy. Another example is provided by the many pitfalls that come with using “synthetic” indicators of inflationary pressure. The most famous of these “synthetic” indicators is the so-called “output gap”. The “output gap” can be defined as a measure of the deviation of the aggregate output of an economy from the maximum level that would be consistent with price stability. This maximum level is then the “potential output”. When current output is above potential, the pressure on the scarce resources should then translate into an increase in prices, that is, inflation. In the real world, the monetary authority constantly faces the challenge of observability and measurement. Unfortunately, we cannot “assume” to know the “potential output”. The best we can do is to try to “estimate” the output gap by using observations of many other correlated variables. We all know how imprecise and model-dependent this “estimated” measure can be.
By way of example: geopolitical considerations, present and future macroeconomic scenarios, regulatory and supervisory developments, technological developments and the emergence of new competitors. The bank must also take into account its starting point, its strengths and weaknesses, and how it compares with its peers. As you all know, new competitors need not be other banks, but the so-called fintech companies, which are destined to exert pressure on and accelerate the ongoing technological renewal of financial institutions. Undoubtedly, therefore, part of banks’ strategic drive should focus on how to face this challenge and the competition. 4/8  I would next like to address four key aspects from the strategic standpoint: capital; the legacy of non-productive assets; liquidity; and governance. As regards capital, while Spanish banks have strengthened their capital base and, consequently, have improved their ratios in recent years, duly meeting the minimum requirements, there are no grounds for complacency. Firstly, although the current situation is that Spanish banks have, on average, high asset density (measured by their risk-weighted assets) and low leverage levels, it is also a fact that they continue to have lower capital ratios than their European peers. On EBA data for March 2018, Spanish institutions’ CET1 solvency ratios are below the EU average at that date (14.4%). This shows that Spanish banks must continue making headway in one of the key elements of the new rules of play, namely that they must have more and better-quality capital than before the financial crisis.