Whether a quake seems likely to occur soon has no bearing on this. For resilience in structures, the best indicator of underlying vulnerability is how close the city is to the fault line or plate boundary. On that basis, Apple’s new California HQ uses new earthquake resilient technology. 3  For resilience in the financial system, it is how much debt there is in the economy (or economies) to which it’s exposed. That’s why, when we come to decide how big the banking system’s buffers of loss-absorbing capital should be, we don’t focus on any economic tremors we may feel. We don’t insist on tougher standards just because trade tensions threaten to slow the world economy or changes in sentiment hit financial markets, or because uncertainty is weighing on the domestic economy. Instead we focus on debt – a key driver of how far up the Richter scale economic earthquakes tend to be. 4 Think of a build-up of debt as being the economic equivalent of building close to a fault line. When a quake hits, the impact is greater and more resilience is needed in the structures. This focus means we can appear contrarian. Debt has a habit of increasing in calm periods, when those in the financial system think it’s safe to take more risks. So we can find ourselves demanding tougher standards when risks are thought by many to be low. And we don’t start demanding them when the tremors start, when risks are thought by many to suddenly be high.
As to firms, the reduction was more marked in the case of small and medium-sized enterprises (SMEs), whose access to other financing sources is generally more limited. This fall-off in credit should be viewed set against the correction of the excess debt built up by Spanish households and firms during the expansionary phase that ended in 2008. Deleveraging has been necessary both on the part of lenders and of borrowers. But this credit contraction should also be viewed in relation to the end of the – what was unsustainable – expansion of the real estate development and construction sectors. And of no little importance, moreover, has been the re-drawing of the map of Spanish credit institutions – I refer here to the disappearance or transformation of many savings banks – which has, in a good number of cases, necessitated the re-configuration of relations between lenders and borrowers and has no doubt had a bearing on the funding difficulties experienced by viable firms with sound expansion projects. For credit to flow normally again, two essential conditions must be met: economic growth must increase and the restructuring and recapitalisation of our banking system must – as is indeed under way – be completed. A strong, healthy banking system that acts transparently and offers full guarantees to depositors, borrowers and investors is an absolutely crucial condition for sustained economic growth and, therefore, for the correction of our very serious unemployment problem.