Let me start with an important one, the so-called “liquidity narrative 1” which sets up in order to knock down, and attributes to regulators, the view that the financial crisis (indeed crises more generally) was caused by a lack of liquidity rather than solvency in the banking system, and this blinded people, notably regulators, to the real cause of the problem, namely solvency and capital. Whatever happened in the past, it is most certainly not true today. Loss of liquidity is much more the symptom than the cause of crises, and while symptoms have to be observed, and some actions taken to minimise their effects, I am in no doubt that the cause is usually either an actual solvency problem or critically rising expectations that there will be such a problem in the future. If you spend time in the PRA, you would quickly learn that capital is front and centre in what we do as supervisors. Why is that so? Banks are different from other financial firms because they provide deposit contracts to their customers. A deposit is a very particular form of debt contract. For all of us the essential feature of a deposit contract is simple – we put our money (our asset) on deposit at a bank, and we expect all of it back, with whatever rate of return is agreed, and we expect to have access to it in line with the terms of the contract. Let’s contrast that with non-deposit debt (bonds) and equity contracts.
In addition, the euro zone has undergone tremendous changes in the institutional settings by the establishment of the Single Supervisory Mechanism by the ECB, along with the Single Resolution Mechanism and other accompanied ongoing or upcoming reforms. Another area of reforms in the European Union was the strengthening of fiscal and macroeconomic policy through the Fiscal Compact and accompanying macroeconomic surveillance mechanism, aiming at sound public finances and preventing from macroeconomic imbalances. What urgently came to our knowledge during the last crisis was the importance of the financial stability for the overall macroeconomic stability, but also the so-called “doom loop” between banks and sovereign that emerged from this crisis, adding yet another specific experience that we should all be aware of in the future. BIS central bankers’ speeches  1  On the recovery process and sustainable growth The data since mid of the last year and the forecast for this year are pointing to an upturn of the global economy, although it is still fragile and surrounded by risks. The economic recovery of the European Union is crucial for stronger revival of the region, considering the trade relations, although due to specific factors, countries in the region differ in terms of their position in the economic cycle. In 2013, the Macedonian economy grew by 3.1%, mainly driven by the strong net export and the strengthening of private consumption in line with curbing down of the unemployment.