Therefore, while the focus of my comments will be on the current situation and looking forward to the future, I hope you will allow me also to reflect on some of the things I have learned over the past years. In the first part of my intervention today, I will discuss the current state of the new framework for bank capital adequacy, or Basel II, as well as how supervisors are carrying out work related to Basel II and sound risk management practices. Second, I would like to discuss some of the key lessons that I’ve learned in the development of Basel II, which are factors that I believe will contribute not only to its successful implementation and longevity, but also more generally to financial stability and effective banking supervision. And I will close with some more detailed comments on a lesson we have learned during this process that I think has broader implications for risk management in general – that is, the importance of taking account of the macroeconomic perspective and the effects of the cycle. Basel II update One of Barcelona’s greatest claims to fame is its modernista architecture, exemplified by the work of Antoni Gaudí. The modernistas looked to the past for inspiration, but applied modern tools and techniques to create something new with a focus on intricate details. Of course, the Basel II Framework does not have the beauty of Gaudí’s Sagrada Família, but I nevertheless think that both supervisors and the industry have accomplished something similar.
This group of speculators, despite increasing volatility to a certain extent, cannot remain in the market for long, as they generally lose money. The second group or the good speculator, on the other hand, in line with his/her forecasts, sells when it is a bull market and buys when it is a bear market. Leaving aside the problems of causing volatility, this group contributes to stability in the markets. Within this framework, it is possible to see members of both groups in any market. In an effective market, it is not possible to make a profit continuously guided by bad speculation, nor do the prices formed in the market approach those prices indicated by economic variables. Consequently, speculation does not have much effect on prices created in an effective market; on the contrary, it may make a positive contribution to the markets by increasing liquidity. Hence, speculation is not a threat in derivatives markets, but a guide in activating the spot market by increasing liquidity. Another important point with regards to derivatives markets is that these markets enhance the predictability of spot markets, which form the basis, and help them perform more effectively, by enabling the expectations of economic units in the future to be measured and reflected on prices. As a matter of fact, prices in derivatives markets are actually the prices that are expected in spot markets in the future. 5  Baron D. (1976), “Flexible Exchange Rates, Forward Markets and the Level of Trade”, The American Economic Review, Vol. 66, No. 3, pp.